Revenues and margins at Europe’s big three credit rating agencies are back to pre-financial crisis levels and the trio are in line for more business, despite a welter of new rules aimed at reducing their influence, a regulator said on Monday.
Moody’s, Standard & Poor’s and Fitch came under fire when securitised debt they rated highly turned toxic from 2007, sowing the seeds for a global market meltdown and costly bank bailouts.
Politicians on both sides of the Atlantic passed a raft of rules to better supervise the agencies and the US even banned the use of ratings in some instances.
Yet the European Securities and Markets Authority, which regulates the 27 rating agencies operating across the EU, said as demand for rating securitised debt fell, ratings for high-yield corporate debt filled the gap.
“Data show that revenues and margins of the three largest credit rating agencies have been growing materially since 2010, with 2013 figures back to the levels last seen before the financial crisis hit in 2008,” the markets authority said in its annual report on the agencies.
The big three still dominate, even though far more agencies now operate in Europe to offer competition.
“This growth has not had a significant impact on the overall market shares of credit rating agencies, which remain largely unchanged since 2013,” the markets authority said.
The EU passed three sets of laws on ratings agencies in as many years since the financial crisis. One rule, known as 8d, requires an issuer appointing two agencies to include one with a market share of less than 10%, or say why this was not possible.
“We do not feel that 8d has been properly monitored or enforced thus far,” said Alan Reid, managing director of the DBRS agency, which has a 1.3% market share, among the two highest outside the big three.
The European Securities and Markets Authority said S&P has a market share of 40% in the EU, Moody’s has 35% and Fitch 16.2%. Nigel Phipps, managing director of government affairs at Moody’s, said its market share reflected the high quality of its ratings and strong track record.
“There is also demand for a few players who have more of a global view, which takes a lot of up-front investment and expertise,” Phipps said.
The demand for ratings may even grow further. The market authority’s chairman Steven Maijoor said the new rules had aimed to ensure financial stability and a high level of investor protection.
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