New credit raters struggle to break stranglehold of 'big three'

Mon Jan 20, 2014 10:42am EST
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By Marc Jones

LONDON (Reuters) - For all the outrage over the role of the big three credit-rating firms in the financial crisis, they show no sign of losing their grip on the highly profitable industry.

That has not stopped new contenders joining the 50 or so lesser-known rating firms that have long been trying to grab a bigger slice of the business.

The financial crisis should have helped their cause. The big firms - Standard and Poor's, Moody's and Fitch - lost much kudos when many of the complex U.S. housing market-linked loans that they rated top-notch triple-A turned out to be worthless.

Many of the newcomers are touting themselves as preferable alternatives. A Lisbon-based firm called ARC that launched last week says its ratings will be far cheaper than the dominant players and will take a more balanced view so be less volatile.

But official figures show how hard it is to make headway. S&P, Moody's (both 40 percent) and Fitch (17 percent) are holding onto over 95 of the industry's marketshare. S&P made $850 million from its ratings business last financial year, up 18 percent on the year before. Its latest results show a profit margin of 42 percent.

Dave King from the South African GCR agency, one of five small agencies that have come together to form ARC, acknowledges the difficulties.

"The rating agency business is a catch-22," King said. "You don't get a client until you have credibility, but you don't get credibility until you have a client."

"You could put a billion dollars into it but you'd still end up blowing it over time."   Continued...

A view shows the Standard & Poor's building in New York's financial district February 5, 2013. REUTERS/Brendan McDermid