On October 10, 2008, the Standard & Poor’s Agency placed the credit ratings of two companies – OAO Rossiiskiye Zheleznye Dorogi and ZAO ALROSA on the CreditWatch list with a negative outlook, following their purchase of investment bank KIT Finance. The motivation behind this decision, as it was acknowledged by Standard & Poor’s analysts, was based on the agency’s lack of detailed information about this deal. But if there is no information, then what, I beg your pardon, is there to Watch? What kind of information is needed for the agency to overcome the tantalizing state which they call “Watch”? And for that matter, was there any “Watch” alert in the financial market just several months ago? Who gave a ВВВ+ to Eurobonds issued by KIT Finance in April 2008, which were secured by the bank’s mortgage? S&P’s did it.
Standard & Poor’s further intensive meditation gave birth to yet another message containing a forecast for Russian banks’ ratings. The agency spared its effort to analyze factors influencing the activities of specific banks and just supported ratings with a “stable” outlook for government-related banks. The purchasers of KIT Finance are exactly government-owned companies. So if we follow the agency’s logic, this deal provides for stability of KIT Finance, but it is totally unclear why owning a stable bank affects its owners’ ratings?
Probably, a renewed bank rating could help, but in the beginning of this year KIT Finance stopped cooperation with Standard & Poor’s because this agency’s ratings were “impeding collaboration with investors and counteragents.”
Such wording may be considered as utterly mild taking into account the “error” in evaluating U.S. mortgage bonds committed by Standard & Poor’s last year. The value of this “inaccuracy” based on yet another “lack of detailed information” amounted to billions of U.S. dollars. This kind of high professionalism of the agency’s analysts will stick in the memory of trustful investment bankers, including those of KIT Finance, for a long time.
What sort of methods were used by S&P’s in the course of many years for scientific cognition of surrounding environment to award then credit ratings to trillions of totally unsecured liabilities? In what way do rating agencies give their ratings to banks, which are today being bought en masse by their national governments? What kind of stuff do they analyze in the process?
In this particular case methodology is already no more important because the crisis has demonstrated it once again that there is no methodology at all. This is why it is useless to take into account something which does not exist and evidently will not exist any more.
Sergey Vybornov, President of AK ALROSA
Interfax
