EXECUTIVES from the three main ratings agencies were accused of “effectively holding governments to ransom” by MPs on the Treasury Select Committee yesterday during a hearing in which one MP lost his temper and left the meeting when he did not like a response.
Ratings chiefs told MPs they believe they would be failing in their duty if they opted not to downgrade a sovereign that merited it.
Fitch managing director David Riley said: “It’s incumbent on all of us, including ratings agencies, to do the role we play… Where we can help address that is not by pretending those issues aren’t there.” But he said that investors’ views are “more important” than agencies’ views, despite the weight given to credit ratings.
He also rejected the accusation by Andrea Leadsom MP that the three agencies, Fitch, Moody’s and S&P, are “guilty of groupthink”. Wilson said that on the US and UK, the agencies disagree.
At one point, discussions became so heated that David Ruffley MP called Fitch’s managing director of sovereigns David Riley “useless” and stormed out of the hearing when Riley failed to answer a question about bank ratings.
Michael Fallon MP also went unsatisfied in his query as to Scotland’s potential credit rating should it become independent.
But S&P was keen to defend its decision to downgrade the US, and said that the fact that yields had moved in the opposite direction since the move is due to investors taking a shorter-term view.
S&P managing director and head of sovereigns Moritz Kraemer said: “One of the key elements in the methodology [for sovereigns] is the political environment... the governance challenges the US political system is experiencing in generating a strategy to get its finances under control are worse than those of [triple-A rated] Finland.”