MOSCOW, April 28 (RIA Novosti) – Financial markets are ruled not by credit rating agencies but by big investors and creditors, says French financial expert and author Norbert Gaillard.
“The situation in the market is determined by major investors, funds, insurance companies and creditors, rather than by rating agencies,” he said Monday in an interview with the Voice of Russia radio station.
Gaillard, a French economist specializing in financial risks and ratings and author of the book “Les Agences de Notation” (“Rating Agencies”), believes that credits agencies have largely lost their influence in recent years after they failed to predict the Eurozone crises in 2011 and 2012.
“Rating agencies are incapable of forecasting crises. At the end of the day, this moved their assessments to the backburner, turning them into a secondary factor,” the pundit explained.
Today, only the US-based “big three” – Standard & Poor’s, Moody’s and Fitch – are looked up to by the majority of international investors as go-to investment consultants, although more out of habit than logic.
But even the troika is gradually losing its grip on financial markets. National governments in Europe tend to disregard credit ratings when outlining guidelines for financial institutions.
“The omnipotence of rating agencies is subjective. In my opinion, bond yields should be the first thing to look at, because they reflect how easy it is for a country to attract private investment,” the expert said.
According to Norbert Gaillard, lending ratings for Europe’s crisis-hit southern nations have been climbing down despite quite low credit ratings, meaning investors have far more trust in economies like junk-rated Greece and Portugal than credit agencies.
Another exception is the United States, whose AA+ rating is regarded as a solid AAA by Anglo-Saxon investors. “Every investor interprets these ratings as they see fit,” the pundit noted.
In 2010, Germany and France upheld the initiative of Jean-Claude Junker to set up a European-based credit agency to offset America’s Big Three, who tend to revise their ratings after what they consider as geopolitical shifts.
But Gaillard believes the future of rating agencies is in their mergers, as it was with China’s Dagong agency in Hong Kong that merged with the Rus Rating and US-based Egan Jones to create one of the few notable credit firms outside US.
“Anglo-Saxon, European and American investors are used to referring to the troika and don’t see why they should work with anyone else, which is strange because the blame for the 2007 mortgage bubble lies with them too.”
S&P has recently downgraded Russia’s credit rating to BBB- from BBB, after the Crimean crisis broke out. Russia dismissed this move, with Finance Minister Alexei Ulyukayev saying it was “a politically motivated decision.”
