Who are these agencies that rate States and companies?

by time news

2023-05-31 13:21:26

The Minister of Economy Bruno Le Maire assured Wednesday May 31 that the government would be “intractable” on the reduction of deficits, two days before a possible downgrading of the rating of the French public debt by the rating agency S & P.

Standard and Poor’s is one of the three main organizations – called “Big Three” –, along with Moody’s and Fitch Ratings, to estimate the financial solvency of States. In other words, its role is to rank countries (with triple A being the best rating) according to their ability to repay their debts. Banks rely in part on its data to grant them loans.

These agencies were strongly criticized during the subprime crisis in 2007, since they had rated many toxic assets with the maximum rating. It then turned out that some had conflicts of interest when rating these assets.

► S & P, a story that began in 1860

S&P Global Ratings is a branch of S&P Global, responsible for producing analyzes on stocks, bonds – that is, debts – and commodities. Its history begins in 1860, with the publication by Henry Varnum Poor of a reference work on the financial state of American railway companies.

In 1906, Luther Lee Blake created the Standard Statistics Bureau, which was to provide information on companies outside the rail sector. Their merger in 1941 gives Standard & Poor’s Corp, the current company.

S&P currently awards the highest rating, AAA, to several countries: Canada, Sweden, Norway, Germany, Switzerland, Denmark, Australia and the Netherlands. France has been rated AA since 2012 (while the country had held AAA since 1975).

Since 2011, the United States has been rated AA+, a drop that came at the time of a political disagreement over the public debt ceiling, similar to what the country is experiencing today.

► Moody’s, at the heart of the first rating agency scandal

Moody’s was established by John Moody in 1909 to provide statistical data on stocks and bonds. Like S&P, it is now a respected rating agency, even making it into the 500 largest companies in the United States in 2021.

Moody’s estimates the ability to repay both states and companies. This agency currently rates France AA2, the equivalent of S&P’s AA. It was the first to implement the 21-notch rating system, ranging from triple A to C.

The agency was at the heart of the first state debt rating scandal. In 1931, it had downgraded Greece’s rating, which had induced a flight of capital which went as far as armed conflict with Italy in 1940 for default of payment.

In 2007, Moody’s was also heavily criticized for its poor assessment of subprime mortgages, the cause of the 2008 financial crisis.

► Fitch, once controlled by a French billionaire

The company was founded by John Knowles Fitch in 1914 in New York. Since its merger in 1997 with IBCA, it has had a second head office in London. It came under the control of Fimalac, the group of Marc Ladreit de Lacharrière, between 2015 and 2018, before the French billionaire sold it to Hearst for 4.8 billion dollars.

Fitch is the first to have lowered the French rating this year by one notch, from AA to AA-, following the adoption of the pension reform. The agency justified its decision by the strong social tensions linked to this law, which constitute a “risk for Macron’s reform program”.

#agencies #rate #States #companies

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