Just as investment banks often spin annual league table results to suit their own needs, Moody's Investors Service, Standard & Poor's and Fitch Ratings are picking the best results of a recent study to cast themselves in a favorable light. By drawing their own interpretations from the highly anticipated study that examines their methods and performance in the securitization markets they are undermining the results, say some ABS pros. The study, conducted by consulting group National Economic Research Associates and released last week, examined rating methodologies, migration and history over a 10-year span ending in 2001. "The market wanted definitive results, but this report is disappointingly inconclusive," says Mark Adelson, head of structured finance research at Nomura Securities.
Each agency found a part of the 65-page report that they say backs up their claims, according to several structured finance observers. Moody's, which paid for the report, says it shows "real and substantive differences" among rating agencies, just as it hoped it would. "We're not saying we're better or we're more conservative, just that differences exist," says Brian Clarkson, global head of structured finance. Fitch, the relative upstart rating agency that likes to portray itself as equal to the other two, draws a different conclusion from the same report, which also features 200 pages of exhibits. Fitch says the difference in ratings is minimal and, since the most-recent data comes from 2001, ratings have likely converged even more since then, says James Jockle, a spokesman. "If you look at this as a movie, with a beginning, middle and end, we're now at the end where everything has converged," he says.
S&P, meanwhile, chooses to highlight the report's findings that it is the most-aggressive agency and is most likely to downgrade bonds before the other agencies. The report shows S&P's ratings are more stable than those of any other agency, says Adam Tempkin, a spokesman. What S&P doesn't draw attention to, however, is the finding that a whopping 50% of the structured finance ratings S&P assigns are triple-A, while the level is roughly 33% for Moody's and Fitch. The full text is available at www.nera.com.
One veteran analyst accuses the rating agencies of spin control. "The reality is, Moody's is the 900lb gorilla and it's in their interest to point out any differences with Fitch. I'm sure when Moody's paid these guys to do this, they made it clear that Fitch was the target," he adds. Another ABS pro adds, "And of course, Fitch doesn't want there to be a difference."
Andrew Carron, senior v.p. at NERA and lead author of the report, says the views of the ratings agencies are not necessarily inconsistent with each other. "A difference can appear to be small and still be statistically significant," he says. He and Clarkson of Moody's declined to reveal how much Moody's paid for the report. One analyst speculated the price tag was north of $100,000. The report features a disclaimer warning that "there may be alternative interpretations."
