Credit rating - time to rearrange the deckchairs?
Jinfo Blog

By Tim Buckley Owen

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As the United States Congress launches another investigation into the ratings agencies, evidence continues to suggest that the established players won’t have it all their own way much longer. But who will emerge as the winners and in which parts of the world will their writ run?

According to Reuters, the Congressional Financial Services Committee has demanded explanations from both Moody’s and Standard & Poor’s about whether they overlooked crucial information in evaluating the futures brokerage MF Global. It filed for bankruptcy last autumn admitting making risky bets on European government bonds. 

The committee seems to be getting a taste for this sort of thing; last summer it hauled in the heads of both agencies to justify the influence they seemed to wield over the US economy (LiveWire comment here). And meanwhile the established players continue to be pressed by newcomers (more LiveWire coverage) worldwide.

In Europe, the Italian agency CRIF has announced that it has obtained registration from the authorities rendering its ratings valid across all European countries. CRIF is also on the board of the European Association of Credit Rating Agencies (EACRA), one of whose aims is to work with regulators on alternative business models to those of the Big Three.

But it’s events in the emerging economies that may really matter. Bloomberg reported on Christmas Day that China’s central bank governor Zhou Xiaochuan said the country should reduce its reliance on overseas rating companies, adding that the nation was also considering establishing its own companies backed by the government.

Meanwhile in India, Equifax Credit Information Services has launched new personal credit scoring and review offerings and is considering opening a bureau in the small and medium sized enterprises sector. Sovereign rating it isn’t – but crucially Equifax India is a joint venture with six major Indian banks, so has local roots.

Also in India Morningstar, whose equities research arm rates stocks to identify whether they are trading at a discount or premium to their intrinsic worth or fair value estimate, is planning to launch India-specific indices shortly. The aim is to tap the exchange traded funds market, launching just a few indices to start with to gauge the response – which it clearly believes will be positive.

Harried on so many sides one big player – Standard & Poor’s – has recently undergone a radical reorganisation, including the departure of its former president Devon Sharma who (as VIP’s Nancy Davis Kho commented) was perceived as the public face of the agency throughout its recent troubles. Only time will tell whether this – and any similar actions by the other Big Two – will help them avert the looming iceberg or simply be a case of rearranging the deckchairs on the Titanic.

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