Credit Rating Agencies and the Smell of Fire

2010: The A-Team -  Joe Carnhan

As a financial planner with expertise in investment, you may have read my post yesterday about the change in the Fund Manager of the Blackrock UK Fund. Well call me an old cynic, but today one of the ratings agencies (OBSR) has announced that it has reduced its "rating" of the fund from AA to A. One has surely got to ask the question why on earth they did not do this earlier? after all the performance has been disappointing for some time. An alternate view might be that the downgrade represents the increased uncertainty about the future due to the change in Manager, which is the sort of line that is offered. However, whilst I admit the analogy doesn't hold entirely, this is a bit like yelling "fire" once the flames can be seen, rather than observing the smell of smoke somewhat earlier, which after all, is presumably the point of a ratings agency. The sad reality is that ratings agencies now seem to be having a disproportional impact on investment markets. Given the failings of credit ratings agencies pre-crunch, one wonders what ratings they themselves would attain. Sadly, there seems to be no plan B.