“I don’t think rating agencies are corrupt, I believe they are incompetent,” Healey continued. Their analysts are often inexperienced as they are often quickly poached by investment banks, he explains. “They have a very opaque structure as well. All their decisions have to be reviewed by investment committees, which are populated by business people, not by analysts. Consequently, they tend to be late to downgrade and late to upgrade.”
Besides that, especially Moody’s is “notorious at doing things to grab headlines,” thinks Healey. He then gave the example of the Malaysian oil company Petronas, which was recently downgraded by Moody’s. This was done in a way to generate a maximum of media attention. “It was downgraded by two notches because that would take their average rating down below the threshold level where it would have to leave the investment grade index,” he explained. “They are a headline-grabbing firm, and the value they have is not considered very high in investment industry.”
Every drawback has its good side
Elissa Johnson, manager of the Henderson Secured Loans Fund, does not think much of rating agencies either. But she looks at it from the bright side. “I like rating agencies because they create opportunities in the market for an active manager like me.”
Paul McNamara, emerging market government debt specialist for GAM, put all the rating agency bashing into perspective. “It’s very hard to get good independent research unless you want to pay for it. Besides, I believe the sovereign analysts are the respectable side. I think there are some good spots in the rating’s business, without disagreeing there are some very serious shortcomings,” he concluded the discussion.
