An interesting article from Namawinelake
May 15, 2013 by namawinelake
“It’s hard to make a man understand something when his livelihood depends on him not understanding it” Upton Sinclair
How do ratings agencies make money? It may come as a surprise to some of you that ratings agencies get paid by companies to rate their debt and prospects. Which inevitably places ratings agencies in conflict between their desire to be retained to provide an assessment on one hand, and on the other the need to provide independent credible assessments to the market. But that’s how the business works, and the world’s biggest ratings agencies show no sign of withering away, despite the opprobrium heaped on them after failing to identify looming crises in American sub-prime mortgage lending and European bank debt.
The three main ratings agencies will be familiar to most of you – Standard and Poor’s, Moody’s and Fitch. A fourth ratings agency, Dominion Bond Rating Service (DBRS) might not be a household name but it seems to get disproportionate reference by the NTMA when pointing to how healthy our prospects are. DBRS recently produced an assessment of NAMA, covered here. Whilst it undoubtedly contained useful and factual information, for example the three year accounts analysis, its opinions on NAMA were eyebrow raising in their positivity.
DBRS said of NAMA that it has assembled a “talented team” with “deep experience” and with “the necessary skills to extract the best possible return from the loans and underlying property assets”. DBRS went on to say “NAMA has developed a robust and efficient infrastructure that allows NAMA the flexibility to develop individual responses to each debtor that bests maximizes the returns “
We find out today that although NAMA picks up some of the costs of the ratings agencies generally who rate NAMA’s bonds, that NAMA itself directly pays only one of the ratings agencies and guess which one? Yes, it’s DBRS! How much does NAMA pay them for their handsome compliments? Alas, that is confidential.