Research Roundup: MBIA Ditch of Fitch
MBIA’s move to eseentially drop Fitch ratings may have some rational basis, but it’s hard to see how it will help matters.
The bond insurer justifies its position in a letter to Fitch and in comments by CEO Jay Brown on Floyd Norris’s blog post on the topic. Whatever its disagreements with Fitch’s model may be, the fact that Fitch rates MBIA lower than Moody’s and Standard & Poor’s do makes it look like a case of firing the teacher for giving bad grades, as Norris says.
MBIA seems to think that its chances of having a viable business will be enhanced by assuring that only friendly rating agencies are allowed to rate it. I doubt that is a tactic that will work.
Portfolio.com’s Felix Salmon commends Brown for his responsiveness to criticism and also cites MBIA’s objection that Fitch has tripled its fees since 2005.
The overall impression one gets from Brown is that he’s fighting hard, but fighting fairly, on behalf of his company.
Still, MBIA’s complaint that Fitch’s fees are too high only adds credence to the view that the agencies are essentially paid for high ratings.
As MarketWatch’s Hank Greenberg puts it:
When the world is clamoring that debt rating agencies, which you pay, aren’t independent enough, the last thing you do is fire the one that appeared the be the most independent.
And this from FT Alphaville:
So a simple enough question: would MBIA be ditching Fitch did they still rate it AAA?
When usually arcane topics such as credit ratings become front page news and attract the attention of politicians, the real issues often get lost in the shuffle. Whatever the merits of MBIA’s case, this looks like an argument it may not win.
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