Path:Sino-US›› Hot Topics>> 2012>> Credit Ratings>> Media››
New rating agency to “align with common interests of human society”

Credit rating agencies from China, Russia and the US are establishing a joint venture that they say will change the assessing of risk in global finance.

 

Dagong, a Chinese agency that has repeatedly downgraded the US, Egan-Jones, a small US agency, and Russia’s RusRating said they were answering calls for reform of the international credit rating system by linking forces to create the Universal Credit Rating Group.

 

Standard & Poor’s, Moody’s and Fitch, the three biggest rating agencies, have faced intense criticism for their failure to predict the global financial crisis.

 

The new venture said it would be a multilateral, international agency that did not represent the interest of any country or group, and accused the world’s leading agencies today of serving the US government.

 

The clear position of protecting the interests of the largest debtor country has deprived the current rating system of the due independence,” Guan Jianzhong, Dagong president (pictured), said at a news conference in Beijing.

 

He also said the major ratings agencies had traded “rating grades as commodities in order to maximise their own interests”, and that they lacked both the motivation and the understanding to reform the system.

 

In a joint declaration, the three agencies described their mission in grand terms.

 

It is an historic imperative to establish a new type of international credit rating system which follows the inherent requirements of credit rating and which is aligned to the common interests of human society,” they said.

 

The new agency will be headquartered in Hong Kong and incorporation is expected to be completed within six months. The partners gave themselves a five-year timeframe for developing the capacity to produce global credit ratings.

 

Other organisations have set out to reform the global rating system. This year, the Bertelsmann Foundation outlined a blueprint for establishing a global non-profit rating agency for sovereign debt.

 

Critics believe there are conflicts of interest at for-profit agencies, since they are paid by issuers of bonds or other securities to assign the debt a rating.

 

Richard Hainsworth, president of RusRating, said Universal Credit Rating Group would pursue profit but that it would maintain independence by avoiding reliance on any one group or country.

 

We like profit. We don’t intend to run a charity,” he said.

 

Dagong made a name for itself globally by downgrading the US’s sovereign rating twice before S&P became the first leading agency to do so last year. But it has also come under fire domestically for assigning a top-notch rating to the country’s heavily indebted railway ministry.

 

Egan-Jones, an outspoken agency which last month downgraded the US for the second time this year, is facing troubles of its own. The Securities and Exchange Commission in April brought an enforcement case against it for allegedly overstating its expertise in a 2008 regulatory application.


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