Non-profit rating agency pilot gives Germany top marks

BERLIN Tue Nov 20, 2012 11:44am EST

BERLIN Nov 20 (Reuters) - A German foundation issued sovereign ratings for five governments on Tuesday in a test run of its attempt to create a new independent credit rating body after criticism of existing agencies' role in Europe's debt crisis.

The International Non-Profit Credit Rating Agency's (INCRA) pilot run presented by the Bertelsmann Foundation issued ratings for Germany, France, Italy, Japan and Brazil.

At the launch in Berlin, only Germany got the equivalent of a triple-A, by scoring 8.1 marks out of 10.

The scheme is funded by a range of governments, corporate players, NGOs, foundations and private donors and aims to deal with charges that existing agencies lack transparency and are arbitrary and biased.

But it faces a huge task if it is to change the existing status quo, where three agencies - Standard & Poor's, Moody's and Fitch - play a large, institutionalised role in how financial players evaluate risk.

Several banking sector economists and officials contacted by Reuters declined to comment on the issue.

Johannes Mueller, chief economist at fund manager DWS, said: "We essentially welcome INCRA's entry into the market because the oligopoly of the ratings agencies is one of the market's structural defects."

The launch, shortly after Moody's downgraded France by one notch to Aa1, also rated France just below Germany with 7.9 points on its rating system.

"From a macroeconomic perspective, the French data is not so bad but the reform measures underway are not going in the right direction," said Annette Heuser, executive director of the Bertelsmann Foundation, at the presentation of the new ratings.

Throughout the euro zone crisis European policymakers have criticised Standard & Poor's, Moody's and Fitch for being too quick to downgrade ratings of indebted states despite bailouts, spending cuts and tax increases.

That criticism was echoed by France, which said it would push on with reforms in response but complained that the downgrade by Moody's overlooked efforts already underway to revamp the economy.

CHANGE PERCEPTIONS

The role of rating agencies in the global financial crisis of 2008/9 was also widely criticised, with the U.S. Financial Crisis Inquiry Commission (FCIC) even saying the financial meltdown could not have happened without them.

Bertelsmann said its aim was "to change the perception of sovereign ratings" where downgrades were taken as "a national insult ... Sovereign ratings should be seen as a solid blueprint for analysing the challenges facing individual governments".

The foundation said INCRA combined forward-looking criteria such as future resources and adaptability with the financial and economic indicators traditionally used by the commercial ratings agencies.

INCRA said top-rated Germany had weathered the euro zone crisis well, but put it on negative outlook. In July, Moody's changed the outlook on Europe's largest economy to negative.

Italy performed well with 7.2 points, equivalent to an AA-, largely due to effective crisis management and a tradition of bearing high levels of public sector debt.

Japan scored 6.0 equivalent to an A-, the worse score of the five countries assessed, due to its high public debt.

Fourth-placed Brazil scored 6.8 points, equivalent to an A+, with INCRA highlighting its large foreign exchange reserves, lower reliance on foreign currency debt issuance and an "increasingly vibrant corporate sector".

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