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For Immediate Release
[Click Here for Italian Translation]
CapItalia and San Paolo IMI sponsor RiskCalc Initiative
Risk Management Tool Now Covers 13 Countries, Including 8 in Europe
SAN FRANCISCO, October 22, 2002 - Moody's KMV (formerly KMV and Moody's Risk Management Services) announced today the release of Moody's RiskCalc™ for private Italian companies, a Web-based model for estimating the probability of default (PD) on obligations of non-financial Italian private companies. RiskCalc Italy joins the Moody's KMV RiskCalc suite of quantitative credit risk models for private firms and is an important step in its plan to develop a globally consistent network of locally validated risk assessment models. RiskCalc now covers private firms in thirteen countries worldwide, including eight in Europe. It provides the global lending community and corporations with an unrivalled risk management tool that can be used to estimate risk for a single company or as input to portfolio credit risk management software tools, also available from Moody's KMV.
RiskCalc PDs help determine whether a prospective borrower meets credit underwriting standards, whether the current spread on loans is sufficient to add shareholder value, whether loans meet credit risk benchmarks for the development of a secondary market for private firm commercial debt and securitizations backed by commercial debt and whether capital attribution levels are appropriate.
CapItalia and San Paolo IMI have joined the RiskCalc Sponsorship Group, which was formed to facilitate the exchange of credit experience and credit research statistics necessary to develop Moody's RiskCalc probability of default models into a credit risk benchmark for European firms.
Prof. Gianluca Oricchio, Head of ALM, Capitalia, states, "RiskCalc Italy is a very welcome development. Capitalia is integrating credit rating models with interest and liquidity risk models in order to actively manage its portfolio of loans. RiskCalc Italy is a powerful tool as a benchmark for our own proprietary models in this process and we believe in the future as a common language between buyers and sellers in world-wide assets." Adds Dr. Renato Maino, Head of Risk Assessment and Management, San Paolo IMI, "At last there is a publicly-available default probability model, built specifically for Italy. By acting as a benchmark to assess credit worthiness of Italian counterparties, RiskCalc will help establish an international banking loan secondary market. As one of the participants in the RiskCalc Italy sponsorship initiative, we had the opportunity to provide input into the model's calibration to the Italian market and review many of the details of the modeling process, thereby significantly increasing the model's transparency to our institution and providing us the opportunity to assure ourselves on the performance and accuracy of the final model."
Developed in co-operation with Oliver, Wyman & Company, CapItalia and San Paolo IMI, the Italian model is calibrated to the attributes of Italian private companies, using data from an historical database of over 124,000 financial statements from over 52,000 Italian private firms. It uses eight financial ratios to reflect a firm's profitability, gearing, debt coverage, liquidity and asset quality, with an adjustment for firm size. Moody's KMV chose the ratios for each category on the basis of their stand-alone ability to predict default and for their behavior within a multivariate model. They were then transformed and combined to produce one and five-year PDs that are also mapped to Moody's Investors Service's historical bond default rates.
In addition to Italy, Moody's KMV has released RiskCalc models calibrated for private firms in the U.S., Canada, Mexico, Australia, Japan, the U.K., Germany, France, Spain, Belgium, Portugal and the Netherlands and will soon release models covering other major European economies. "We expect that, as the RiskCalc network of models expands, it will become a global standard for default probability credit ratings," stated David Wright, Director Moody's KMV. The standard will enable companies to establish consistent credit assessments that are important for the development of a secondary market for private firm commercial debt, as well as securitizations backed by commercial debt such as Collateralised Debt Obligations. As a result, the ability of banks to trade assets that are now largely illiquid will be greatly increased.
Moody's KMV said the release of the product is especially timely, given expected changes in banking regulation. The Basel Committee on Banking Supervision has issued consultation documents (known as BIS-II) proposing changes to the 1988 Capital Accord. If enacted, the regulations will call for banks to establish greater differentiation on capital requirements according to the implicit risk of an exposure, increasing reliance on banks' internal rating systems. One of the key aspects of BIS-II is the measurement of credit risk, with banks being encouraged to differentiate borrowers and categorize their book exposures based on risk. This approach (for corporate, bank and sovereign exposures in particular), involves estimation of the probability of default, for which RiskCalc is well suited.
Moody's RiskCalc for Italian private companies is available via the Moody's KMV Web site www.moodyskmv.com, allowing clients to determine PDs for large middle-market portfolios quickly and efficiently.
About Moody’s KMV
Moody’s KMV, a wholly owned subsidiary of Moody's Corporation, is the world’s leading provider of quantitative credit risk analysis tools to lenders, investors, and corporations. Moody’s KMV's tools provide current default probabilities, recovery estimates, valuations and correlations, and are widely used to assess portfolio risk/return. Serving over 2,000 clients in 80 countries, including most of the world's 100 largest financial institutions, Moody’s KMV maintains the largest and cleanest database of corporate defaults in the world. In addition to its San Francisco headquarters, Moody’s KMV has offices around the world to serve its global customer base.
About Moody's Corporation
Moody's Corporation (NYSE: MCO) is the parent company of Moody's Investors Service, a leading provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets, and Moody's KMV, the leading provider of market-based quantitative services for banks and investors in credit-sensitive assets serving the world's largest financial institutions. The corporation, which reported revenue of $1.2 billion in 2003, employs approximately 2,300 people worldwide and maintains offices in 18 countries. Further information is available at www.moodys.com.
About Oliver, Wyman & Company
Oliver, Wyman & Company is the leading strategy consulting firm dedicated exclusively to the financial services industry. Founded in 1984, the firm employs close to 350 professionals, working out of offices in New York, London, Frankfurt, Madrid, Milan, Paris, Toronto and Singapore. For further information on OWC, visit its public Web site at www.oliverwyman.com.
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