Products & Services: Bringing Transparency, Market Discipline and Accountability to the Financial Sector

Ratings and Research Reports

The Ethics Framework is a patent-pending process that measures and rate levels of ethical and effective corporate governance by Boards of Directors of financial holding companies. Ethics Metrics brings transparency with independent metrics to measure and rate the impact of ineffective compliance risk management by Boards of Directors on earnings and capital for financial holding companies and related participants in the financial market, including financial companies.

Summary of Ethics Ratings™:

Ethics Ratings of 1 and 2 indicate effective compliance risk management by Boards of Directors with the Code of Ethics and the corporate governance listing standards for well-managed and well-capitalized financial holding companies as measured by CAMELS Ratings of 1 and 2. Ethics Ratings 1 and 2 represent effective internal controls over financial reporting for financial holding companies financial that are well managed and well capitalized.

Ethics Ratings of 3, 4 and 5 are correlated to delisting and restatement risks due to ineffective oversight by Boards of Directors on detecting compliance violations by management and related audit risks by auditors on illegal acts per Section 10A of the Securities Exchange Act of 1934 that have a material impact on financial reporting. These include ineffective internal controls over financial reporting due to illegal acts, material misstatements and material weaknesses on unsafe and unsound practices per CAMELS Ratings of 3, 4 and 5. These include violations of the well-managed standards for financial holding companies with the most serious violations being firms in a troubled condition requiring prompt corrective action, per FDICIA and Financial Stability Improvement Act of 2009, rather than a federal bailout as part of moral hazard. Accountability for these violations requires remediation to restore well-managed and well-capitalized standards per CAMELS Ratings of 1 and 2. This includes restatement of covenant violations and related material misstatements, and material weaknesses within misleading and fraudulent statements so as to prevent delisting of securities. Accountability may also include a new special risk assessment through the Systemic Resolution Fund for financial companies to cover the cost of failed financial holding companies. Financial companies are defined to include investment advisers with assets in excess of $10 billion.

Ethics Rating Scale: The Ethics Framework consolidates, quantifies and rates ethical corporate governance on a scale of 1 to 5 through its patent-pending process and related Ethics Ratings. The impact of required remediation on earnings to solve delisting risks is calibrated in the range of Ethics Ratings from 1 to 5 per Figure 1. Risk factors contributing to delisting risks and related restatement risks are defined in the Ethics Framework .

Ethics Rating Scale	Estimated Earnings Restatements From	Estimated Earnings Restatements To
Ethics Rating 1	More than 10%	10%
Ethics Rating 2	+9.99%	-4.99%
Ethics Rating 3	-5.00%	-14.99%
Ethics Rating 4	-15.00%	-24.99%
Ethics Rating 5	-25.00%	More than -25%

Ethical behavior impacts earnings and enterprise values.

The Services Ethics Metrics Provides

Historical Ethics Ratings for 2002 to 2010. These measure the cumulative effect of a firm’s level of compliance through the interest rate cycle per the standards of the Ethics Framework and related Ethics Rating scale of 1 to 5.
1. Ethics Ratings for 20 of the largest domestic and foreign financial holding companies.
  1. Available by subscription. Contact Ethics Metrics: info@ethicsmetrics.com
2. Matching Ethics Ratings for their Auditors. This measures degrees of audit risk based on the results for the 17 domestic financial holding companies. Audit risk is the failure of generally accepted accounting principles and internal controls over financial reporting to detect and disclose illegal acts, covenant violations, material misstatements and material weaknesses that qualify for (1) ineffective internal controls over financial reporting plus (2) restatement to cure fraudulent statements and related delisting risks of securities. This report measures audit quality, a service lacking in the market place per the Basel Committee on Banking Supervision’s December, 2008 report on “External audit quality and banking supervision.”
  1. Available by subscription. Contact Ethics Metrics: info@ethicsmetrics.com
3. Matching Ethics Ratings for their Bank Regulators. This measures effectiveness of consolidated regulatory enforcement as well as regulatory capture based on the results for the 17 domestic financial holding companies. Ineffective enforcement, including regulatory capture is represented by Ethics Ratings of 3, 4 and 5. Regulatory capture is the failure to enforce due to the hidden influence of external parties for political or economic reasons.
  1. Available by subscription. Contact Ethics Metrics info@ethicsmetrics.com
4. Matching Ethics Ratings for their Exchanges. This measures degrees of compliance with corporate governance listing standards as it relates to complying with the Code of Ethics, laws and regulations and providing effective oversight on audit risks and the integrity of the company’s financial statements. Ethics Ratings of 3, 4 and 5 represent violations of the foregoing regulations that require delisting of securities, unless cured.
  1. Available by subscription. Contact Ethics Metrics info@ethicsmetrics.com
5. Future quarterly Ethics Ratings.
  1. Available by subscription. Contact Ethics Metrics info@ethicsmetrics.com

Ethics Ratings Research Reports:
1. Individual Ethics Ratings Research Reports and peer group reports detail the metrics for the restatement of earnings and capital for the years leading up to Q3 2010 per each of the 17 domestic financial holding companies, 3 foreign financial holding companies, four major auditing firms, two major stock exchanges and the leading financial regulators.
  1. Includes Ethics Metrics' Systemic Risk Index™. This is a leading indicator of compliance and restatement risks for all banks with assets above $1 billion dating from 2002 as compared to:
    1. equity prices per the Google Financial Index,
    2. equity prices per the S&P 500,
    3. Credit Default Swap Index.
  2. Available by subscription. Contact Ethics Metrics info@ethicsmetrics.com
Notice of Regulatory Breaches
1. Available by subscription. Contact Ethics Metrics info@ethicsmetrics.com

Investment Adviser's Exposure Analysis to Ineffective Corporate Governance of Financial Holding Companies and Related Restatement Risks, Investment Risks, Disclosure Risks and Special Risk Assessments.
1. This report and the services of Ethics Metrics empower investment advisers to reassess, manage and price common risk exposures caused by ineffective corporate governance by financial holding companies on compliance. Common risk exposures include restatement risks of earnings and capital to cure delisting risks of securities plus a special risk assessment to cover the cost of failed financial holding companies. These risks impact investment returns and investment disclosures for investment advisers.
  1. Report Summary: September 30, 2010; Available by subscription. Contact Ethics Metrics info@ethicsmetrics.com
Glossary of regulations and auditing standards (for members)