Rating groups vs ratings of group members: evidence from the Italian financial market

Group membership can impact significantly on the risk exposure of a firm but the evaluation of aggregate features is more complex than the individual analysis of each member, requiring the support of an information analyst able to define judgment that considers also the inter-group relationships and to access to private information collected directly from the group. Rating agencies do not make independent estimates of group ratings, with respect to the rating of the individual group entities, and, in many cases, they do not disclose this information to the market. This paper examines the relationship between ratings of groups and individual group entities, with a view to assessing the effects of change to the group structure on the rating. The analysis focuses on the financial sector and is limited to the Italian market, which has been characterized in recent years by a strong trend towards concentration. The results achieved by analysing the rating processes by the main international agencies (Fitch, Moody’s and Standard and Poor’s) show that both the ratings of the groups and the group structure adjusted ratings of the individual entities are not at all affected by the occurrence of significant corporate events regarding the group’s structure.