LONDON, April 2 The risk that creditors rather than taxpayers will bear the brunt of rescuing a bank in trouble form part of the first credit ratings given to 18 of Europe's biggest banks on Wednesday by new ratings agency Scope.
The company, which set up in Berlin in 2002 and started credit ratings two years ago, said it aims to offer a new approach for corporate bond investors that typically rely on the three major ratings firms - Moody's Investors Service, Standard & Poor's and Fitch Ratings.
Scope said its ratings reflected the likelihood that if a bank runs into trouble, bondholders will be "bailed in" to strengthen the bank rather than a taxpayer-funded rescue as happened during the financial crisis.
"Banks are still too big to fail, the only difference is that somebody else will pay to avoid a failure, and that somebody else is the creditors," Sam Theodore, Scope's managing director for financial institutions, said.
"Through bail-in you could call this the privatisation of bank rescues, which to us is one of the most significant regulatory steps taken in recent years in respect to banks," Theodore said.
A new resolution and recovery regime for banks is in place in Switzerland and is coming in across the European Union. This reflects an attempt by regulators to ensure banks are not "too big to fail" and are not guaranteed state support in a crisis. An International Monetary Fund report this week, however, showed banks still benefit from implicit state support, especially in Europe.
Scope said its bank ratings do not receive any uplift for sovereign support unless the state owns a majority, such as for Royal Bank of Scotland. It said its ratings are more geared to forecasts for balance sheet strength and earnings.
It said the banks it rated were all in significantly stronger credit shape than before the crisis, with higher levels of capital and liquidity and lower risks in their businesses.
Its ratings ranged from BBB+ for RBS and Commerzbank to AA- for BNP Paribas and HSBC. Deutsche Bank was given a rating of A-, below the A ratings for Santander and BBVA.
RBS and Commerzbank had made a lot of progress with their restructuring, but RBS was still loss-making and its restructuring could take 4-6 years more, while Commerzbank was still absorbing losses in its non-core arm, it said. (Reporting by Steve Slater; Additional reporting by Laura Noonan. Editing by Jane Merriman)