Wrightings 2

by Anne H. Wright

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Revolving-Door Rating Analysts: How Serious A Problem?

An article in today’s WSJ discusses statistics that have been filed with the SEC on “revolving-door analysts” — credit rating analysts who go to work for a company they rated. The article notes that committees, not individual analysts, make ratings decisions. Nonetheless, you can’t help but wonder whether the possibility of future employment exerts at least a subtle effect on analysts’ assessments.

According to the interactive feature that accompanies the online version of article, the overwhelming majority of analysts who later joined rated companies merely participated in the company’s rating. However, the interactive content also shows that some of the revolving-door personnel were in a leadership roles and hence positioned to exert influence on the ratings decisions: four were senior officers; eight supervised the ratings of their future employers; and in one case the supervisor was also a senior officer of the rating firm.

Given the structural conflicts of interest that may have played a role on overly rosy pre-2008 ratings (for instance, the market-share pressures rating firms experienced after going public), do you think Dodd-Frank focuses too much on the issue of individual revolving-door analysts?

Amplify’d from www.wallstreetjournal.com

"Too much emphasis has been put on this problem" of revolving door analysts, said Scott McCleskey, a former Moody’s compliance officer who has testified to Congress about alleged conflicts of interest at the rating firms. "It’s a minor-league problem that is getting a major league solution."

Read more at www.wallstreetjournal.com

Filed under analysts conflicts conflicts of interest credit-rating financial

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