Receive GCMG News

Send a blank email with SUBSCRIBE in the subject line to to receive notice of risk management ideas and information added to BarrettWells and T3P websites.

Sunday, August 3, 2008

Once again the major Credit Rating Agencies (S&P, Moody’s and Fitch) have failed; once again they are being reprieved…

The following extracts from recent reports point out only the most recent in a string of failures clocked up by the major credit rating agencies. Yet once again all we hear from these agencies is that once again they are reforming.

The message is … not rely solely on the credit ratings published by these agencies when making credit risk decisions. Treat such ratings merely as ‘input’ to be considered as part of your overall analysis, or you will risk more than credit, you’ll risk your company and your job…..


Problems found at ratings firms

A report into the much-criticised activities of credit rating agencies has found conflicts of interest at the firms it studied.

The US financial regulator, the SEC, found that the firms, which rate investments, had broken its rules.

It began looking into their work after they gave positive ratings to sub-prime related investment products whose value later slumped.

The agencies are now implementing better procedures, the SEC said.


(Editor: We heard the same after Enron and Parmalat, let’s hope this time ‘better procedures’ will mean more useful credit ratings)

Tougher rules for rating agencies

Credit rating agencies could be banned or prosecuted under a draft European Union law aimed at making them more accountable for the advice they give.

Firms that rate debt investments, such as Fitch, Moody's and Standard & Poor's, have been criticised for their role in the sub-prime mortgage crisis.

The new law would replace a voluntary code of conduct.

… was generally accepted that the agencies had "failed to reflect early enough in their ratings the worsening of market conditions thereby sharing a large responsibility for the current market turmoil".

(Editor: So what’s new? This has happened time and time again…..)