Pricing risk or buying market share?
The government's plans to make it mandatory for finance companies to get credit ratings has made me think some more about the value of these things. As I have commented before the average retail investor has little clue about how scales work, and in some ways that is no surprise because they are convoluted.
As someone put it to me the other day a company would probably be happier with a BB+ rating than a BBB- as it looks better. People are attracted to positives.
The other thing which has been on my mind is that ratings are meant to help people understand the risk/reward trade off. And if everything went to theory, the organisation with the lower rating would offer the highest rate and vice versa.
So what do you make of someone like RaboPlus with its AAA rating offering the highest rates in the market? Theoretcially it should have the lowest rates. One conclusion, which can quite sensibly be drawn, is that the bank is just buying market share.
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