LONDON, Oct 28 (Reuters) - The German government's idea for
a new European-based credit rating agency comes at a vulnerable
time for the tarnished sector but such a body will have to offer
more than a copycat service if it is to succeed.
The new German coalition government's financial policy
package agreed last weekend backed the development of a European
rating agency, but details remain sketchy.
It revives an old chestnut in Europe where some policymakers
want the dominance of three global agencies, Standard & Poor's,
Moody's and Fitch, diluted by a home-grown rival.
Standard & Poor's and Moody's are American. Fitch, even
though owned by Fimalat of France, is perceived by some as being
American with its chief executive based in New York.
European policymakers have said they want more competition
and transparency in the sector as well as stronger local
connections.
But experts say any new agency would have to offer a global
service and stand on its own feet as a business to avoid
accusations of being beholden to a government.
"I think there is a really strong opportunity now. They are
weakened by what's happened," said Barbara Ridpath, chief
executive of the International Centre for Financial Regulation.
"But they have to demonstrably do it differently, whether in
business policy or business model," said Ridpath, a former
managing director of S&P in Europe.
Credit rating agencies have been widely blamed for giving
high ratings to securitised products that became untradable as
the credit crunch unfolded, creating financial mayhem.
Nevertheless, ratings are likely to continue playing a key
role in guiding investors who buy bonds and shares.
The European Union has adopted a law forcing agencies to
register and be supervised. The United States and Japan are also
cracking down but disquiet over their pervasive role continues.
EuropeanIssuers, which represents Europe's 9,200 listed
companies, wants all references to credit ratings stripped from
EU law, saying there is too much reliance on ratings. The Obama
administration has unveiled an initiative to this effect.
Germany has been at the forefront of past attempts to create
a new European credit ratings agency. A project launched in 1989
fell by the wayside after media giant Bertelsmann withdrew.
"I think the time is now right to think again about this
idea," said Oliver Everling, who was the project's secretary.
"They are not so stupid as to believe it would be easy to
set up a new ratings agency from scratch that would be an
immediate competitor to S&P and Moody's," Everling said.
A newcomer could add value in rating products like closed-
end mutual funds, Everling said.
"If they do not add anything new but only say 'me too, we
provide ratings like S&P and Moody's', then I think it's bound
to fail," Everling added.
A new agency would have to show how it deals with conflicts
of interest such as backing from a government whose bonds it may
be rating, or requiring fees from companies whose debt it rates.
Users may not be interested in a regional offering as they
look at what's on offer from across the world.
"We would be wary of any European initiative," said Peter
Montagnon, director of investment affairs at the Association of
British Insurers, whose members are responsible for investments
worth 1.5 trillion pounds ($2,456 billion).
"We have a long-standing view that the capital markets are
global and the creation of regional agencies, especially with
official backing, will tend to fragment the industry and will
not help," Montagnon said.
A new ratings agency would have to quickly tackle the issue
of credibility and independence and show a track record almost
from day one, which could be done by poaching key staff from
existing agencies, Ridpath said.
Standard & Poor's, which issues over a million ratings a
year, was unmoved by the German plan.
"Our view is that we welcome competition, that the track
record of our European ratings remains very strong and that
ultimately it will be investors that determine the credibility
and usefulness of any ratings provider," an S&P spokesman said.
Fitch and Moody's had no comment.
(Reporting by Huw Jones, editing by Stephen Nisbet)
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