Europe ready to take action against external anti-European financial rating agencies

Europe's most powerful politicians are upset with the leading credit rating agencies which they consider anti-European and threatened them with tighter regulation and break-up.

The German finance minister, Wolfgang Schäuble, said he could see no justification for Moody's recent downgrade of Portugal's debt and believed that limits should be put on the rating agencies' "oligopoly" – the scene has been dominated for decades by the big three: Moody's, Standard and Poor's and Fitch.

Jose Manuel Barroso, the president of the European Commission, noted Moody's downgrade of Portugal added to speculation in the markets and suggested an anti-Europe bias. The European Union, he said, planned to strengthen regulations overseeing the three majors, and said European legislators would also look into issues of "civil liability" for incorrect judgements by agencies on the credit worthiness of sovereign European nations, with an obvious focus on those currently under severe pressure – Greece, Portugal, Ireland and, to a lesser extent, Spain and Italy. "It seems strange that there is not a single rating agency coming from Europe. It shows there may be some bias in the markets when it comes to the evaluation of specific issues of Europe," he said.

The Greek foreign minister, Stavros Lambridinis, said the agencies' actions in the debt crisis had been "madness". The fierce attacks on the agencies' integrity came after a shock downgrade of Portuguese debt to "junk" status by Moody's sent stock markets and the euro sharply down, and sparked fears of another round of contagion. Momentum is growing in European official circles to establish a new EU-based or sponsored ratings agency to rival the established firms.

Standard & Poor's (S&P) is a United States-based financial services company and division of the McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for the stock market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian S&P/TSX, the Italian S&P/MIB and India's S&P CNX Nifty. It is one of the Big Three (credit rating agencies) (Standard & Poor's, Moody's Investor Service and Fitch Ratings). 

Moody's Corporation is the holding company for Moody's Analytics and Moody's Investors Service, a credit rating agency which performs international financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized ratings scale. It is one of the big three credit rating agencies and has a 40% share of the world market, as does its main rival, Standard & Poor's; Fitch Ratings has a smaller share.

Fitch was founded by John Knowles Fitch on December 24, 1913 in New York City as the Fitch Publishing Company. It merged with London-based IBCA Limited in December 1997. In 2000 Fitch acquired both Chicago-based Duff & Phelps Credit Rating Co. (April) and Thomson Financial BankWatch (December). Fitch Ratings is the smallest of the "big three" NRSROs, covering a more limited share of the market than S&P and Moody's, though it has grown with acquisitions and frequently positions itself as a "tie-breaker" when the other two agencies have ratings similar, but not equal, in scale. Stephen W. Joynt is chief executive officer.

EU-Digest