As I have been arguing over the past 6 months, the oligopoly of the credit ratings agencies will probably not be sustained in the long term. Today, we have a new and welcomed competitor, Kroll Bond Ratings Agency Inc. Founded by Jules Kroll, who has a background in corporate investigations, Kroll expects to dig deeper in credit ratings, moving beyond issuer information. Kroll expects to lever his son’s security firm K2 Global to assist in uncovering anomalies or areas of risk that lie off the balance sheet. Kroll is not a new company but rather the business evolution of Lace Ratings, which the company acquired in the summer 2010.
Over the past few months we have seen one new entrant and two acquisitions in the ratings marketplace:
New entrant: Meredith Whitney’s Advisory Group
Acquisitions: Morningstar acquisition of RealPoint LLC and Kroll’s acquisition of Lace Ratings.
These seem like three moves in an industry that is ripe for change, both organizationally and technologically. The anticipation is that change will continue to happen, with ratings agencies acquiring more analytically sound and advanced mathematical ratings capabilities and many of the investor research firms which have such capabilities moving into the ratings agencies marketplace.
It seems like the only barrier to entry standing in the way of new product innovation is related to the selection process for a new Nationally Recognized Statistical Rating Organization. Today, the SEC provides unclear information related to the application and selection process. Once the SEC gets out of its own way and clears the path for more competition, we should feel confident that this marketplace will erupt in many different areas, creating quantitative qualitative, industry specific and many other different types of ratings.
Only time will tell but the trend is showing a positive move in the right direction.
Articles of Interest:
http://professional.wsj.com/article/SB10001424052748703951704576091683201498122.html?mg=reno-secaucus-wsj
http://www.bloomberg.com/news/2010-12-08/credit-ratings-can-t-claim-free-speech-in-law-bringing-risks-to-companies.html
http://professional.wsj.com/article/TPPRN0000020110119e71j004so.html
http://corporate.morningstar.com/us/asp/subject.aspx?xmlfile=174.xml&filter=PR4482
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