Risky business
Jinfo Blog

21st November 2010

By Tim Buckley Owen

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As yet another powerful player sets out to challenge the established credit rating agencies, a new report warns that companies are downgrading risk management at their peril. Having correctly predicted the financial meltdown of 2007, equity analytics specialist Meredith Whitney is applying to the United States Securities & Exchange Commission (SEC) for a licence to operate as a credit rating agency (widely reported: see interview with Whitney in the Financial Times at http://digbig.com/5bcxqj – registration or subscription required – or Reuters report at http://digbig.com/5bcxqk). Operating in the traditional mould of charging the debt issuers for its services, Meredith Whitney Advisory Group’s approach is in contrast to that of another challenger, Bloomberg, which reportedly wasn’t going to apply for SEC certification as it was simply going to use public information to calculate creditworthiness algorithmically (see http://www.vivavip.com/go/e29046 for background). Meanwhile among the established players, Moody’s Analytics has just released a workflow-based product called RiskOrigins. This should allow clients to reduce mistakes their risk management and achieve greater efficiencies by using one process and one Risk Data Warehouse, the company claims (http://digbig.com/5bcxqm). And McGraw Hill has disclosed that its credit ratings company Standard & Poor’s is to be split off from the rest of its financial data and analytics business. This is partly to enable the credit rating side to ‘focus on creating enhanced credit risk benchmarks… in the new and evolving regulatory environment’, the company says (http://digbig.com/5bcxqn). S&P continues to eat humble pie in the aftermath of the credit crunch. A link from its home page on how it will restore confidence in the credit markets leads to an earlier document signed by ratings arm president Deven Sharma – expressing ‘regret’ at the company’s past performance in rating mortgage-backed securities and explaining how it will manage potential conflicts of interest in the future (http://digbig.com/5bcxqp). In the aftermath of the credit crisis, it’s no surprise that risk management remains high on both the vendor and corporate agendas. Despite this, though, a new report from the Economist Intelligence Unit warns that corporate risk teams are still ‘battling for influence and resources’. Only a minority of companies involve risk functions in key business decisions says the report, Fall Guys: Risk Management in the Front Line. ‘The incentive to ensure that there is a clear and consistent approach to managing risk across the enterprise has never been greater,’ says EIU’s Iain Scott – but ‘often the barriers to effective strategic risk management appear to be corporate culture and poor communication’ (http://digbig.com/5bcxqq). No question that communication is a key concern of corporate information managers. And there’s also a consensus among thoughtful information professionals (see for example http://www.vivavip.com/go/e17539) that risk management is the business that most of them are in.

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