Nordea Bank to stop using scale to assess credit quality in research

By Wendy Van Sickle

Columbus, Ohio, Aug. 26 – Nordea Bank AB said it will cease using a scale to summarize credit quality in its investment research in response to the European Securities and Markets Authority’s advising that use of a scale for summarizing credit quality is reserved for registered credit rating agencies.

In a Friday press release, the bank said it believes the Credit Rating Agency Regulation was established after the financial crisis to regulate formerly unregulated rating agencies but not to force additional regulation on already regulated activities.

The bank said it believes there is an exemption for investment research and, along with other banks, has continued “in good faith” to use a scale to summarize credit quality in that research.

However, in light of “strong indications” that the European Securities and Markets Authority interprets use of a scale to summarize credit quality in investment research as a credit rating activity subject to Credit Rating Agency Regulation, the bank said it will discontinue the practice.

Nordea said it will continue its Nordic credit research but without an explicit rating scale.

“Credit research in the Nordics has developed over several decades as an important tool enabling unrated corporates, often non-investment grade, to gain access to funding in the capital markets,” Nordea said in the release. “We believe our practice of assessing the credit quality by reference to an established scale has provided a valuable basis for investors to compare issued bonds and take a view on the appropriate issue risk premium.”

Nordea Bank is a financial services group based in Stockholm.

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