In any discussion about winners from the financial crisis, US money manager BlackRock must be the lead contender – having landed a series of lucrative contracts over the past year from US efforts to clear up the financial mess, completed the $13.5bn acquisition of Barclays Global Investors in June and begun planning, as the FT reported last month, to set up its own global trading platform.
As if that’s not enough for what has now become (since the BGI acquisition) the world’s largest money manager with about $3,000bn in assets under management, BlackRock now wants in on the credit-ratings game, according to the Wall Street Journal, which reported on Thursday that BlackRock appears to be in line for a role helping state regulators size up risks in insurers’ investments.
BlackRock is among a handful of firms to have held talks with officials from the National Association of Insurance Commissioners (NAIC) about possibly taking on a slice of work now done by the key credit-ratings agencies, said the Journal, noting that the role, if it comes off, would “mark yet another power shift on Wall Street”. A key group of regulators is expected to vote next week on this proposed switch away from the rating agencies.
The NAIC work, according to the Journal, entails analysing risk in bonds backed by residential mortgages that insurers own. In a revealing explanation, the report adds (emphasis ours):
The NAIC this year grew disappointed with the ratings agencies after their rapid downgrades of once triple-A-rated mortgage bonds left many insurers holding large amounts of “junk.”
Well then, presumably we won’t see any “rapid downgrades” being recommended by BlackRock. Meanwhile, it all suggests that Reuters’ Agnes Crane is spot on in her post, “Is BlackRock going to rule the world?” to note:
… I’m not sure it’s such a great idea for the insurers to set aside less capital rather than more given their exposure to residential and commercial mortgages. Second, is it a good idea to have big money managers also deciding how risky certain investments are for an industry that invests trillions in bonds?
Regardless of the outcome, we can only agree with the observation by ClusterStock’s Vincent Fernando, that BlackRock has “really played this crisis like a fiddle”.
Indeed, which makes us marvel yet again at the criticisms voiced in July by BlackRock’s chief executive and founder Larry Fink of the “luxurious trading profits” enjoyed by Wall Street banks. Fink, by the way, has been mentioned – at least on MSNBC (video clip here) – as a possible candidate to replace Ken Lewis at Bank of America.
Oh and talking about winners from the crisis, in addition to BlackRock, the insurance regulators also recently have talked to Pimco Advisory, which has not done too badly at all in the past year.
Related links:
BlackRock pitching distressed assets to Main Street – FT Alphaville
S&P cuts BlackRock ratings one notch - FT Alphaville
Is BlackRock too big? – FierceFinance