| LONDON, March 7
LONDON, March 7 Credit rating agencies
were given a rough ride by British lawmakers on Wednesday after
refusing to apologise properly for "blunders" that sowed some of
the seeds of the financial crisis.
Industry officials grilled by Britain's treasury committee
left lawmakers "unconvinced" that problems which surfaced during
the crisis have been addressed, the committee's Conservative
chairman Andrew Tyrie said.
"A number of you don't even feel you have anything to
apologise for," Tyrie told the top officials from Moody's
, Standard & Poor's, Fitch and DBRS.
Frederic Drevon, managing director at Moody's, said the
agency was "not satisfied" with the performance of its ratings
of products based on the U.S. housing market.
This was a reference to the highly rated structured
"subprime" products made up of bundled mortgages which turned
toxic as homeowners defaulted, triggering a chain of events that
led to a credit crunch and taxpayers having to rescue banks.
Dominic Crawley, managing director at S&P, said the agency
had expressed "regret" over the optimistic assumptions built
into ratings of the U.S. subprime products.
Fitch group managing director Paul Taylor said that he
"absolutely apologises" for what happened with structured
products, but saw no reason to apologise for other areas of its
business which he said did not go wrong.
World leaders agreed in 2009 that, because of the crisis,
rating agencies should be directly supervised, and also told
regulators to reduce the role of ratings in capital markets.
They are widely used by banks to calculate capital buffers
and rate financial products, and by funds to base investment
The European Union is going a step further and has proposed
forcing users of ratings to rotate or switch to another agency,
after a set number of years, in a bid to encourage competition
in a sector dominated by the Big Three: S&P, Moody's and Fitch.
Alan Reid, managing director Europe at DBRS, a Canadian
agency trying to build market share in Europe, said rotation
would provide diversity of ratings, reduce risks from market
concentration and increase competition.
But S&P's Crawley said rotation would risk generating
volatile ratings when the switch took place and was a "blatant
hindrance" to normal competition.
Moody's Drevon warned rotation would allow rivals to pick up
business, irrespective of quality, and encourage "ratings
shopping" as issuers select a new agency that would likely give
them a better rating.
There was no short-term solution to boost competition,
Taylor said, adding it took Fitch years of "knocking on doors"
and heavy investment to build up market share to 17 percent,
still well behind Moody's and S&P at around 40 percent each.
Lawmakers accused the agencies of having been part of a
"racket" by playing along with the banks in giving high ratings
to the securitised products as long as the money was so good.
"Certainly not," Drevon said.
Taylor agreed there was a herd mentality before the crisis
and that Fitch had not accounted for changes in behaviour --
such as U.S. homeowners handing back the keys of their property
-- that could influence ratings.
"There is no guarantee that we wouldn't miss something again
in the future," Taylor said.
The representatives of the rating agencies were unable to
say what percentage of U.S. structured products had to be
downgraded or if people were fired for their ratings mistakes.
"It should be burned on your mind, given you got it so
wrong," said Conservative lawmaker David Ruffley.