When the chair of Chinese ratings agency Dagong Global Credit first lashed out at his Western rivals, FT Alphaville promised to keep watch over any new developments.
Guan Jianzhong had accused American agencies of being “politicised and highly ideological,” who “didn’t properly disclose risk and this brought the entire US financial system to the verge of collapse”. Less than a week later, he was equally unsparing toward Dagong’s local Chinese competitors.
Well, Standard & Poor’s chairman Harold “Terry” McGraw III has now hit back, telling the FT on Tuesday that his agency’s failure in the crisis was the result of honest mistakes:
“A couple of assumptions we made didn’t work out and we just totally missed on the US housing recession.”
And as for Guan’s specific accusations:
Mr McGraw said China’s Dagong agency would have “to stand on its own”, by publishing its policies, procedures and putting out assumptions and criteria in a very transparent way.
“I haven’t seen that much on the analysis part,” said Mr McGraw.
Nor does McGraw agree with Guan’s opinion that governments should play a bigger role in the ratings process:
“You want a credit rating agency to be fully accountable, transparent and you want them independent and out there at arm’s length,” Mr McGraw said.
Of course, we’ll mention briefly that independence from the government is one thing, and independence from the organizations that pay you to rate their products is another… but FT Alphaville will leave that conversation for another time.
In other news, S&P has also downgraded rival Moody’s from AA-minus to BBB-plus, three notches above junk territory. Maybe someone is feeling feisty after getting through FinReg bill untouched.
UPDATE: FT Alphaville just noticed that it’s not quite accurate to say that ratings agencies got through FinReg “untouched”. Although the bill didn’t fix the conflict-of-interest problem, it did give the SEC a new office to oversee them and, by rescinding a previous exemption, made it easier for investors to hold them liable for their ratings.
Chinese rating agency criticises … Chinese rating agencies – FT Alphaville
The unpredictability of the unsolicited rating – FT Alphaville