Ratings Monitored Continuously?

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Von Dr. Oliver Everling | 14.Juni 2008

One myth the rating agencies propagate is that „ratings are monitored continuously.“ Roger P. Nye, President, Global Investment Advisors, Inc., Carlsbad, California, USA (www.gia-inc.com), points to the realities of the rating industry. According to him, the reality is that following credits is really a case of „catch-up,“ meaning the analyst tries to keep up with developments as best he/she can, given their heavy workload. At Moody’s one sovereign analyst is currently responsible for covering nineteen different sovereigns and supranationals with a report due on each one annually. Even with access to the Internet every day, no analyst can stay on top of everything at a company or a country, warns Nye.

Moreover, the agencies have restrictions on travel to keep costs low and restrictions on „mingling“ with other analysts outside the company. Equity analysts on Wall Street are more likely to stay up to date on the companies they follow compared to the bond analysts. Fixed income analysts are just not plugged into industry trends as well as equity analysts are. Then again, their time horizons differ, says Nye.

Thus, „continuously monitored“ means more like „periodically reviewed“ or „occasionally thought about.“ The offset to this is that the analysts are held responsible for following their credits closely and could lose their job if surprises arise that make the agency look like (s)he was asleep on the job.

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