EU Agency Rotation Appears Dead

June 29, 2012 by · Leave a Comment
Filed under: European Union, The Rating Agencies 

One of the European Union’s (EU) proposals to increase competition among rating agencies by requiring corporations to rotate rating agencies at least once every three years appears to have been largely abandoned.

Instead, agencies will only need to be switched once every five years and then only for very specific types of credit.

Reuters reports that the change was made because of intense pressure by corporations and banks who feared they would be forced to use rating agencies who lacked credibility among American and Asian investors.

There appears to be broad parliamentary support for this diluted rotation; however, the industry is still objecting. Reuters writes, “The Association for Financial Markets in Europe, a lobby group for the big banks, says mandatory rotation is excessive and could harm a revival of the securitization market, which is needed to help banks fund themselves.”

Other EU regulations on rating agencies that appear to be going forward include: reversing the burden of proof for those suing rating agencies – the agency would be required to disprove any claim; limiting the issuing of sovereign debt ratings for 27 EU countries to two or three fixed dates every year; and a ban on rating agencies from using non-public information to compile ratings.

EU Banks Move to End Cooperation with Agencies

June 25, 2012 by · Leave a Comment
Filed under: European Union, International 

Dissatisfaction with rating agency decision-making has led major European Union (EU) banks to intensify talks about reducing cooperation with Standard & Poor’s, Moody’s and Fitch.

Sky News reports that widespread frustration has caused executives “from about a dozen of the Continent’s biggest lenders” to discuss the issue informally during the Institute of International Finance in Copenhagen.

Nothing was agreed to, says Sky News. But they quote an unnamed source as claiming that, “things are certainly moving in that direction.”

They also quote a senior bank executive as saying, “The ratings agencies got it horribly wrong on the way up; there are lots of reasons to suppose they are getting it wrong on the way down.”

The rating agencies have been aggressive in downgrading both EU banks and their countries’ sovereign debt. And it is expected that Moody’s has planned yet another downgrade for Barclays, Lloyds Banking Group, and Royal Bank of Scotland.

Structured Finance Still Subject to Rotation

April 18, 2012 by · Leave a Comment
Filed under: European Union 

Everyone including its author, Michel Barnier, the European Union’s Commissioner responsible for internal market and services, has largely abandoned the ill-fated recommendation that European debit issuers rotate rating agencies. However, as part of a compromise coming from the Ecofin committee, the requirement is still in place for structured deals. The industry was anticipating that it would be abandoned altogether.

The International Finance Review quotes a London-based industry observer as saying, “This change, as you can imagine, is going down like a bucket of cold sick … Structured finance – yet again – is being used as an expendable asset class that European regulators can experiment on.”

The draft regulation also includes specific disclosure requirements on structured deals that are intended to ensure investors do their own credit work. Since January 2011, structured deals in Europe have all required a combination of risk retention (skin-in-the-game), investor due diligence, and issuer transparency.

EU vs. Rating Agencies, Part II

February 29, 2012 by · Leave a Comment
Filed under: European Union, The Rating Agencies 


If you don’t like the opinion, BAN IT.

This fits the storyline that the problems in markets are the rating agencies’ fault.

Let’s recognize that governments enshrined ratings by the NRSRO designation.

Central planners need to answer this question. Ratings are an opinion, or they aren’t.

My guess is establishment of an official, “GSE-like”  rating agency…

That will solve everything…

Europe Seeks to Reduce Debt Ratings’ Influence New York Times, February 29, 2012

European Union Proposes New Sovereign Debt Rating Rules


We don’t want your opinion unless we ask for it.

More of the same. The problem is the rating agencies, not the profligate spending of the politicians. 

Credit-ratings companies should be banned from rating sovereign debt unless they have been contracted to do so by the country concerned, a European Union lawmaker said in a draft report on proposed EU rules. Leonardo Domenici, who is responsible for steering rules on credit-rating companies through the European Parliament, called for the measure to be added to last year’s proposals from the European Commission. Domenici also said either “an independent public European credit rating agency” or “an existing independent Union institution shall be entrusted, with the task of assessing the creditworthiness of Member States’ sovereign debt.” Domenici’s report will be voted on by other members of the parliament. The assembly, together with EU ministers, must agree on the final wording of the proposed law before it can be implemented.

-From Bloomberg News, “EU Parliament Report Targets Curbs on Sovereign-Debt Ratings” by Jim Brunsden, Feb. 17, 2012

EU Softens Stance on Agency Rotation

November 18, 2011 by · Leave a Comment
Filed under: European Union 

A portion of the new regulation proposed for rating agencies operating in the European Union (EU) is a requirement to force corporations to rotate their rating agency every four years. This original proposal has been modified so the rating agency only needs to be rotated every six years. For those corporations who use more than one agency, they only need to rotate one.

Those close to the regulators cautioned that this latest draft could still change.

Regulators are eager to enforce the new standards to correct what they feel to be contributing factors that led to the financial crisis. They believe that the ratings agencies have grown too close to the companies they are hired to evaluate and are unable or unwilling to provide an accurate assessments of structured credit products.

European corporations complain that the regulations are onerous, politically motivated and that they will be forced to rely on little-known rating agencies or to offer fewer ratings to investors. This, they argue, will make it more difficult to access global capital markets.

EU vs. Rating Agencies

November 15, 2011 by · Leave a Comment
Filed under: European Union, The Rating Agencies 

More government legislating behavior.

Let’s give the EU the ability to temporarily “ban” ratings on sovereign debt if they don’t like the ratings.

Let’s open rating agencies to liability, where THEY have to defend against a standard of proof that there wasn’t “gross misconduct.”

Let’s have the EU add more rules to “increase competition.”

The logic appears impossible.

The EU farce continues.

EU Proposes Rating Agencies Can Be SuedThe Wall Street Journal, November 15, 2011