Tags: Dagong | Egan-Jones | RusRatings | credit

Credit Ratings Agencies from China, Russia and the US Join Forces

By John Morgan   |   Friday, 26 Oct 2012 08:14 AM

Three independent credit ratings agencies from China, Russia and the United States launched an international venture to end the dominance of the “Big Three” credit ratings agencies: Standard & Poors, Moody’s Investors Service and Fitch Ratings.

The venture participants said the effort would be impartial, and accused the world’s leading agencies, all of them American, of serving the U.S. government, according to The Financial Times.

The companies, Dagong Global Credit Rating of China, Egan-Jones Ratings of the U.S. and Russia’s RusRatings, said the intent is to change the assessing of risk in global finance and reform the international credit ratings system.

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“The clear position of protecting the interests of the largest debtor country has deprived the current rating system of the due independence,” claimed Guan Jianzhong, Dagong president, the Times reported.

The new venture, called the Universal Credit Rating Group, is based in Hong Kong.

Critics claim there is a conflict of interest at for-profit agencies, since they are paid by issuers of bonds or other securities to assign the debt a rating. An exception to that business model is venture participant Egan-Jones, which is paid by the buyers of the bonds rather than by the issuers.

Richard Hainsworth, president of RusRating, said Universal Credit Rating Group would pursue a profit by avoiding dependence on any one group of country. “We like profit. We don’t intend to run a charity,” he said.

AFP news service reported the new group wants to break the dominance of S&P, Moody’s and Fitch within five years.

“I believe we can do this. Our goal is to form a new system with the synergy of everybody that will balance the existing system,” said Jianzhong.

Sean Egan, president of Egan-Jones, said “some of the firms in the United States” played a primary role in causing the 2008-09 financial meltdown, according to AFP.

The South China Morning Post noted that Dagong and Egan-Jones have not escaped criticism themselves.

Dagong was criticized last year after it gave the debt-ridden Chinese Railways Ministry its highest rating of AAA, the newspaper said.

Egand-Jones, meanwhile, downgraded the U.S. debt for the second time in April, and then received a complaint from the Securities and Exchange Commission claiming the firm had overstated its expertise in it applied for accreditation in 2008, the newspaper said.

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