By Richard Milne
Markets were expecting a downgrade of Italy?s credit rating. But they were expecting Moody?s would provide it, not its rival rating agency Standard & Poor?s, writes Richard Milne in London.
The competition between the big two names in the ratings business is a hot debate in the markets. Some accuse them of engaging in a form of ?competitive downgrading?. After one of Moody?s many downgrades of Greece in recent months, the finance ministry in Athens wrote: ?Having missed the build-up of risk that led to the global financial crisis in 2008, the rating agencies are now competing with each other to be the first to identify risks that will lead to the next crisis.?
There was, however, considerable disparity between the two agencies before the eurozone crisis, which exploded into life in April 2010 as Greece headed towards its first bail-out.
Taking the ratings of the peripheral eurozone countries – Greece, Ireland, Italy, Portugal and Spain – S&P had ratings for the five that were a collective 13 notches lower than Moody?s. Following the Italian downgrade, it is one notch lower for the five countries.
?We did have to play catch-up to some extent,? a Moody?s executive said a few months ago. S&P executives, on the other hand, believe they were ahead of markets in signalling that eurozone countries had different credit qualities.
Officials at both agencies argue that they do not look at what the other is doing but base their work on assessing a country?s creditworthiness according to specific criteria. ?This is not some sort of race,? one says.
? The Financial Times Limited 2011