Standard and Poors gives ratings a rethink

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The Independent Online
STANDARD AND POORS, the ratings agency, is to pay more attention to issues such as corruption, cronyism and poor statistics when assigning risk ratings.

The move is in response to widespread criticism that Western credit agencies on which investors rely accepted too much at face value and failed to warn early enough of problems in emerging markets before last year's collapse.

"We will be putting greater emphasis on broader issues of corporate governance," George Dallas, the managing director for Eastern Europe, the Middle East and Africa, said yesterday.

"Information risk is a key aspect to what we are doing. We are trying to address that."

Mr Dallas defended the agency against charges that its warnings, particularly about the Russian crisis, were inadequate.

"We started Russia with a low rating. We were aware that the Russian banking system was problematic and the public finances were shaky. We were negative when the market was bullish. Our record is one that has actively reflected the situation there."

He went on: "We have turned down ratings because of inadequate information or when we've been asked to do ratings where we are not given access."

Standard and Poors, in its latest annual review, says that despite the recent Brazilian crisis and the lingering worries about possible Chinese devaluation, its "base case assumption" is that there will be no crisis that will bring down the world financial system or affect it to the degree that last August's financial crisis did.

The agency says that Western Europe, because of the financial stability of the region both in the run up to and since the introduction of the euro, has emerged as a safe haven compared with the rest of the world. Francois Veverka, the director for Western Europe, said that despite the emerging market debt problems, Western European banks have seen no major downgrades and in fact credit quality has improved with upgrades exceeding downgrades last year.