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Blue Sky queries risk rating selection

Blue Sky Asset Management is warning advisers that AAA-backed structured products may be being marketed on headline credit ratings that might not offer a reliable categorisation of risk.

Last month, Meteor launched the prima growth plan 12, a six-year annual auto-callable plan backed by AAA-rated Rabobank, one of a number of other Rabo-backed plans thought to be under consideration in the market.

Blue Sky chief executive Chris Taylor says there appears to be evidence of “at the surface selection” of Rabobank in the market based upon its AAA rating.

He says: “At the time of writing, the five-year credit default swap on Rabobank is about 130bps, which is just below that of RBS and 15bps above HSBC. This is an anomaly, as the CDS market is pricing Rabobank at the same level as the 70 per cent per cent nationalised RBS (A+), and strangely higher instead of lower than the lower- credit-rated HSBC (AA).

“It could be the credit rating might not be reliably categorising credit risk here – as the CDS certainly does not reconcile itself with what would be expected of a AAA-rated institution.”

Meteor finance director Simon Bottomley says: “In the current financial climate it makes sense to seek high-quality counterparties. By any reasonable measure, Rabobank fulfils this criteria.”

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