Rating agency feud: S&P vs. Dagong

 EmailPrint This Post Print This Post

This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.

It all started almost a month ago when Dagong, the largest credit-rating agency in China, took on S&P, Moody’s and Fitch.  Dagong issued its first international sovereign risk report on July 11 by giving 27 countries out of the 50 a markedly different rating than the Western big three.

Dagong did not stop there. It also openly slammed the Western rivals in a Financial Time interview by stating that:

“The reason for the global financial crisis and debt crisis in Europe is that the current international credit-rating system does not correctly reveal the debtor’s repayment ability.”

Guan Jianzhong, chairman of Dagong later also criticized Moody’s, Standard & Poor’s and Fitch of becoming politicized, “too close to the clients”, ideological and losing their objectivity.

Harold “Terry” McGraw III, the chairman and chief executive of McGraw-Hill companies, which own Standard & Poor’s credit agency, finally went on record and told the Financial Times on August 3 that S&P, Moody’s and Fitch Ratings were being made populists’ scapegoats.

According to FT, McGraw’s populism remark was partially directed to Dagong. McGraw also questioned Dagong’s own transparency and methodology, and said “I haven’t seen that much on the analysis part”.

As for S&P’s role in the financial crisis, McGraw said the agency had merely made “a few honest, technical mistakes” to have totally missed on the U.S. housing recession. (You think the House oversight committee would beg to differ?)

Less than 24 hours later, in an exclusive interview with Xinhua, Guan rebutted S&P with some sharp replies as reported by Xinhua:

“The accusation is irresponsible for the Western rating firm to label a new-born international rating agency as “populist”, instead of carrying out self-criticism on its own highly politicized rating standards.

“Standard & Poor’s failed to identify the debtor nations’ currency depreciation, which infringed on the interests of the creditor nations, as the sovereign debt default. Such practice is the fundamental cause weighing on the instability of the international credit system.”

Moreover, Quan said the independence of some U.S. rating firms needs to be questioned due to the close relationship between the shareholders and their clients, adding Warren Buffett is the largest shareholder in Moody’s.

Interestingly, separate news reports said Dagong might delay its American credit-rating market entry plans, after the SEC had in April this year rejected Dagong’s application, as it does not have local offices or provided ratings services to American companies.

Meanwhile, Standard & Poor’s assigned Moody’s a BBB-plus rating on Tuesday. Moody’s association with Dagong via a three-year co-op agreement back in 1999 probably has absolutely nothing to do with this downgrade.

However, since McGraw did say he thought S&P would come out of the current period “bigger, better and stronger”, could Fitch be the next on S&P’s downgrade list?

Source: Dian Chu, Economic Forecasts & Opinions, August 5, 2010.

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

More on this topic (What's this?)
Nearly 70% Of S&P 500 Stocks In Correction Or Bear Market Territory
S&P Approaches Critical Tipping Point
S&P500 Getting Ready to Break
Read more on S&P 500 (SPX) at Wikinvest
OverSeas Radio Network

Leave a Reply

  

  

  

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Top 100 Financial Blogs

Recent Posts

Charts & Indexes

Gold Price (US$)

Don Coxe’s Weekly Webcast

Podcast – Dow Jones


One minute - every hour - weekdays
(requires Windows Media Player)
newsflashr network
National Debt Clock

Calendar of Posts

August 2010
MTWTFSS
« Jul Sep »
 1
2345678
9101112131415
16171819202122
23242526272829
3031 

Feed the Bull