Can Bloomberg Topple the Ratings Agencies?

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This has the potential to be a fascinating development:

“When Bloomberg introduced a credit rating function to its terminals May 10, some wondered whether the company that revolutionized technology for traders was trying to steal market share from Moody’s, Standard & Poor’s, and Fitch, the world’s three largest rating agencies. An internal Bloomberg memo obtained by the Daily Mail reportedly says that the company wants to offer a “robust gauge” of a debt issuer’s creditworthiness.

“Anyone looking for a Moody’s killer was quickly disappointed. The new tool (or function, in Bloomberg parlance) doesn’t rate bonds when they are issued, so it doesn’t address the “issuer pays” conflict of interest. It only rates corporate debt, not the structured bonds that were at the heart of the credit crisis. And Bloomberg has not applied to become a Nationally Recognized Statistical Rating Organization (NRSRO), the designation that makes its ratings count in rules and regulations that depend on ratings. Since non-NRSRO ratings don’t give a bond a regulatory seal of approval, they’re not going to challenge the regime of the Big Three.

But what Bloomberg’s rating tool does do is use a quantitative model to evaluate a company’s credit health and the probability that its bonds will default. The model is completely transparent — Bloomberg explains all of the assumptions that went into the model’s creation, so investors know all of the data used and they can stress test it with their own inputs.”

It would be interesting to see a move away from subjective ratings, and towards something more objective. And any change away from reliance on a 3rd party for opinion might force the buyers to actually do some homework . . .

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Source:
What Bloomberg brings to the credit ratings game
Katie Benner
Fortune, May 24, 2010
http://money.cnn.com/2010/05/24/news/companies/bloomberg_credit_ratings.fortune/index.htm

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