Not much has changed in the bond ratings world. The three major ratings agencies completely missed the real estate crash. And today they operate as if it never happened. Timothy Martin reports here.
Six years after getting a failing grade for their role in the financial crisis, credit-rating firms are at the top of the class.
Riding a global bond boom, the two biggest U.S. firms, Standard & Poor’s Ratings Services and Moody’s Investors Service, MCO +0.25% this month are expected to post record first-quarter profits. Fitch Ratings said in its annual filing this month that 2013 was “one of its best years ever.”
Beyond the spike in bond deals, the resurgence is due largely to the absence of major changes to the industry since the crisis: The business model, in which debt issuers pay for ratings, remains in place; regulations proposed years ago are yet to be implemented; and new competitors have gotten little more than a toehold.
This is despite heated rhetoric from regulators and legislators in the wake of the crisis, in which they castigated the firms for giving elevated ratings to mortgage-related bonds that later soured. The industry’s ability to escape relatively unscathed is in contrast to others, most notably big Wall Street banks, that have been the target of a wave of regulation designed to change behavior that contributed to the meltdown.
“There was a lot of talk, but there wasn’t a lot of action,” said Marc Joffe, a former senior director at Moody’s MCO +0.25% and now principal consultant at Public Sector Credit Solutions in Walnut Creek, Calif., who has been critical over the lack of major changes to the ratings world.
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