The increasingly strained relationship between the US and Europe is strengthening the case for the growth of a homegrown European rating agency.
Scope Ratings, based in Germany, is poised to take a bigger role in the bond market as the only European rating agency so far approved for use by the European Central Bank.
This is not about nationalism or anti-Americanism. Nor is it to suggest that Moody’s, S&P, Fitch and DBRS — all north American-owned — are not doing a good job of assessing European credit risk.
But credit ratings are opinions on the creditworthiness of private companies, governments or supranational institutions. And diversity of opinions is valuable.
A distinctively European-rooted opinion provider could help both borrowers and investors — whether based in Europe or not — gain more attention from local as well as foreign market participants, precisely due to this diversity.
It could be useful for foreign borrowers looking to tap European investors, or for European issuers wanting to diversify their funding outside Europe.
The seismic shift — initiated by the Trump administration — in the US’s willingness to provide security to Europe, and Ukraine in particular, has sparked concern about the future of Europe.
The US is distancing itself from many countries in the region, not least by threatening to impose trade tariffs.
Europe will have to respond with its own tariffs, and may substantially increase defence spending, to provide more of its own protection.
These political forces are likely to bring an upheaval in European credit dynamics, such as has not been seen for at least a decade.
As this unfolds, investors could benefit from being able to consider multiple opinions on creditworthiness — and a variety of providers is likely to prove helpful.
On Monday, Instituto de Crédito Oficial, Spain’s national development bank, mandated Scope Ratings to provide it with credit ratings.
The agency is a quasi-sovereign issuer and proxy for the government in the bond market.
The news is a win for Scope — which will now provide ratings to the three main Spanish public sector issuers, along with the sovereign and the Community of Madrid.
But this should also be embraced as good news for the market.
Japan has for years supported two domestic rating agencies, JCR and R&I. While they have minimal presence outside Japan, they matter for yen investors. They provide their local take to domestic investors and offer different value from the foreign trio of major agencies.
And because investors care, foreign issuers care too. Many established cross-border borrowers that want to tap into the pool of yen savings have for years obtained Japanese ratings.
The current widening mid-Atlantic rift offers Scope Ratings a rare opportunity to carve out a niche for its European-nuanced opinion that can benefit all in the bond market.
In a world where public spending is expected to shoot up, any development that can provide additional insights to investors is a positive.