CREDIT RATING AGENCIES UNDER THE US AND EU SPOTLIGHTS - Two big events occurred yesterday in relation to the credit ratings agencies, whose business model is blamed for at least some of the financial crisis. The likes of Moody's, Fitch and Standard & Poor's had told the world that complex financial products packed full of exposure to US sub-prime loans were a safe bet for investors, when clearly they were anything but. The ratings agencies did not see the calamity coming, a calamity that pitched the world into a credit crunch, collapsed Lehmans and precipitated a near global recession.
Yesterday the European Union announced plans for a new watchdog to regulate ratings agencies.
Meanwhile in Washington, the Financial Crisis Inquiry Commission heard from super investor Warren Buffett. He was subpoenaed to appear before the committee. He owns 17% of Moody's. The commission yesterday described Moody's as a 'Triple A' factory - a reference to the fact that ratings agencies are paid by the companies they are asked to rate. Warren Buffett said it was true the ratings agencies got it wrong but he adds that so did everyone else.
Paul de Grauwe, Professor of International Economics at the University of Leuven in Belgium, has written critically about credit ratings agencies. He has said in the past that ratings agencies are like cigarettes and that they should carry a health warning. He says the idea of a watchdog is a move in the right direction, but whether the move will be sufficient in another matter. He says that credit rating agencies had advised banks on how to design complex financial products which they would then rate. He says there is an obvious conflict of interest and until structural changes are made to the agencies, he doubts if those conflicts will be resolved.
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MORNING BRIEFS - Wall Street rallied last night on the back of gains in energy companies whose value had tumbled so badly the day before. Halliburton said that even with a six-month moratorium imposed on deep water drilling imposed by President Obama, it still had plenty of work to do. One trader said that despite what he called 'the genuine bloodbath' in the energy sector on Tuesday, there was plenty of interest in snapping up cheap looking shares. The Dow Jones closed up 2.25% and the Standard & Poors finished more than 2.5% higher.
*** US car makers recorded double digit percentage growth in car sales comparing May this year to May 12 months ago - indicating stronger consumer confidence. Ford reported a 22% sales gain and GM's overall sales were up 17% on a year ago when the company was heading into bankruptcy. Chrysler, which was already operating in bankruptcy last May, reported a monthly sales gain of 33% for last month.
***Members of the Society of Chartered Surveyors and the Irish Auctioneers and Valuers Institute have voted in favour of the creation of a single representative body. The organisation, which will be called the Society of Chartered Surveyors Ireland, will represent around 4,000 people working in property and construction.
*** Elan has said that chief executive Kelly Martin has agreed to change his current open ended employment contract to a fixed term contract. He will remain in his current role as CEO until May 2012. He will then serve on the Elan board as Executive Adviser until January 2013. Elan says the change is all about 'prudent executive succession management'.
*** On the currency markets, the euro is worth $1.22 99 US cents and 83.46 pence sterling.
