Agencies
Standard & Poors, Moody's and Fitch have dominated the global market for
credit ratings. But their dubious role in the 2008 financial crisis has
highlighted the need for more impartial alternatives.
In early
2008, the big three US ratings agencies. Standard & Poors, Moody's and
Fitch, were till issuing first-rate credit ratings for banks and financial
products which only months later collapsed in the financial crisis.
Some
analysts have criticized the agencies' near-monopoly positions, arguing their
inaccurate assessments helped inflate the subprime mortgage bubble in the
United States that caused the crisis.
Since 2008,
nothing much has changed as the "big three" agencies still dominate
95 percent of the global ratings market, passing crucial verdicts without which
the world's finance markets wouldn't work.
However,
China's independent ratings agency Dagong Global Credit is preparing a
challenge which could challenge the US agencies. In October, it announced plans
to form a joint venture with Russian agency RusRating and Egan-Jones Rating,
the fourth largest US ratings group.
The three
companies said in a statement that Universal Credit Rating Group, as the new
agency will be called, intended to issue "impartial ratings" in an
attempt to "speed up reform of the global credit rating system."
Dagong
Chief Executive Guan Jianzhong said the group planned to be fully operational
within the next six months, and that that "dozens" of smaller ratings
businesses from more than 20 countries were interested in joining the group,
which would be based in Hong Kong.
Doubts about
independence
In an
attempt to dispel concerns about state interference in the new group, Guan
Jianzhong pointed out that his company was a private venture in which Chinese
state and party officials had no political influence.
In
addition, the three founders stated in their statement that the new agency
wouldn't represent the interests of any country or group.
 |
| There are doubts as to how independent Dagong can be |
However,
doubts remain about the agency's independence as CEO Guan is a Communist Party
member with close ties to the Chinese leadership. Before he founded his private
firm, he had worked for the government, which still employs him as an advisor.
Such ties
are crucial for doing business in China, market analyst Oliver Everling told
DW. "It's impossible to set up a ratings agency in China that is fully
independent of the state and could act against state policy," he said.
Close ties to politics and business were essential for any agency, Everling
added.
Business
model makes the difference
The new agency
arrives amid mounting criticism of the ratings decisions taken by the US
agencies and the business model they pursue.
"There
is serious evidence that in the past decade a number of European countries were
given worse credit ratings than would have been justified in respect to their
finances and the general state of their economies," Manfred Gärtner of the
University of St. Gallen told DW.
He welcomed
the foundation of an "alternative" to the United States agencies,
arguing the seat of the agency was of minor importance.
Gärtner
said the biggest problem with ratings agencies was their complex network of
inter-dependence with the finance industry as a result of joint ownership
structures and shared profit interests, which were fostered by close private
ties and business locations.
China's
Universal Credit Rating Group, Gärtner added, could avoid the typical clash of
interest by adopting the business model of its partner Egan-Jones rather than
that of rivals Moody's, Standard & Poors and Fitch.
Egan-Jones
Ratings charges the investors who buy their ratings reports, while the Big
Three are paid by the company or bank which issues a financial product or seeks
a rating.
As well as
China, Europe, too is making efforts to launch its own ratings group next year
- a project which is spearheaded by Roland Berger consultancy firm.
In
addition, the influential Bertelsmann Foundation of Germany presented a
proposal in spring 2012, suggesting an international not-for-profit agency.
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Chinese, US, Russian agencies set up new credit rating company
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