We are not ratings agencies
Jinfo Blog

By Tim Buckley Owen

Abstract

Ratings agencies Kroll and Bertelsmann continue their advance in the established sovereign ratings market to try to challenge the big players. However, competition may be strong in Europe and the reputation of sovereign raters compares unfavourably with those assessing the creditworthiness of businesses and individuals.

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Ratings agency wannabes Kroll and Bertelsmann continue their inexorable advance on the established sovereign rating players who contributed to the global financial meltdown. Small wonder perhaps that, elsewhere in the credit reporting business, competitors seem to be huddling together for support.

Flush with funds from the sale of his original companies in anticipation of retirement, veteran corporate investigator Jules Kroll has been setting up his own Kroll Bond Ratings to challenge the Big Three – Moody’s, Standard & Poor's and Fitch. “I was always shocked and disappointed at the lack of diligence they undertook in a number of areas,” he recently told the journal Bond Buyer, pointing out that they control about 97% of the market.

He’s also told the Wall Street Journal that he’s on the acquisition trail. He’s interested in affiliations and investments as well as acquisitions, otherwise it will take too long to expand – primarily "international" purchases, since the firm plans to start rating European banks and asset-backed deals from the region by late 2013.

Once he gets into Europe, he’ll likely face competition from another newcomer, the Bertelsmann Foundation. With its president Gunter Thielen also clear that it was “faulty sovereign credit ratings” that contributed to the threat of global cataclysm, Bertelsmann has now developed its blueprint for an international non-profit credit rating agency (INCRA), whose rating criteria are designed to increase credibility and international acceptance.

Its funding comes from a coalition of governments, corporations, non governmental organisations, foundations and private donors. An endowment of $400 million is the estimated amount needed to establish and maintain INCRA, safeguard its independence, and generate sufficient annual revenue for maintaining operations.

Also in Europe, the European Securities & Markets Authority (ESMA) is busy setting up a Central Rating Repository (CEREP) to help regulators compare the performance of the ratings agencies that ESMA supervises. The agencies will be held responsible for the accuracy and completeness of the data they supply – so there’ll be no hiding place (LiveWire coverage here).

So tarnished is the reputation of the sovereign raters that it’s probably not surprising that players in the more workaday segment of the market have been banding together for support. Formed just over a year ago, the Business Information Providers Association (BIPA) is an alliance of the five principal credit reference agencies in the United Kingdom – Creditsafe, Dun & Bradstreet, Equifax, Experian and Graydon.

BIPA has recently launched its own website, one of whose aims is to explain how commercial credit reference agencies differ from the ratings agencies. There is clearly a world of difference between sovereign ratings and assessing the creditworthiness of businesses and individuals – but not perhaps in the eyes of the public or, more importantly, the mainstream media.

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