When credit rating agencies fail
David McLeish, Senior Portfolio Manager
1st September 2018
News last month that the Chinese credit rating agency, Dagong Global Credit Rating, had its license suspended is yet another chapter in the less-than-illustrious history of the credit rating industry.
Irregularities that include giving companies higher credit ratings than their financial standing would otherwise have deserved, in return for cash, are just part of a laundry list of activities Chinese authorities claim to have exposed at the company.
I’m not suggesting for one minute that fraudulent practices such as these are anything other than an isolated incident. But the fact remains, this is an industry which has struggled with credibility even well before it’s more pervasive practices of assigning triple-A ratings to toxic structured products contributed to the Global Financial Crisis a decade ago.