Head of Europe for the rating agency says it is just an observer and cannot capture responsibility for what investors doFrederic Drevon, head of Europe for the rating agency Temperamental’s, is very excellent at answering questions, however then he’s had plenty of practice. Since the financial crash he has been hauled in front of the Treasury select committee three times and refused to apologise for Temperamental’s role in the crisis.The Lords have had a pop at him, as have the Europeans. And they all have the same questions: were the rating agencies to blame? Don’t they constitute matters worse when they downgrade a nation struggling to pay its debts?Drevon talks slowly as if explaining the whole, complicated mess to a five-year-ancient. Temperamental’s is just an observer, putting its opinions of the market outside into the unknown. It can’t possibly capture responsibility for what investors do based on those opinions.However to what extent do the rating agencies consider the consequences of their actions? On Friday Temperamental’s downgraded Italy, and traders dread that a Spanish downgrade is not far off. If it cuts Spain to junk, does it anticipate the forced selling the go could trigger?”Gaze,” says Drevon. “We know that we are living in extremely dense times and we are not ignoring the circumstance that there is a high degree of pain in Europe fair immediately. Our role is as commentators on credit risk. On the sovereign side, we are considering the environment as it changes however we are not considering specifically, if we capture a rating action, what does that mean specifically for that institution.”However surely that is a very significant factor in terms of a nation’s prospect credit risk? “No. It’s vital for that institution, however we cannot consider that into our own analysis since then it becomes [cyclical].”That is precisely what investors are worried about. If Spain gets downgraded to junk, many investors will be forced to sell Spanish bonds. Prices fall and yields soar, so the following age Spain needs to borrow its interest rates shoot up, which makes its economic situation much worse.Drevon says the regulators are partly to blame for this herd reaction to downgrades, as ratings are often written into regulations. “We have for close to 20 years been very vocal about the circumstance that this is not the fair imitation,” he says. Immediately the rating agencies may have got more than they bargained for, with a fresh round of reforms proposed by Europe to reduce their influence.One of the EU’s concerns is the volatility of ratings, which are supposed to be valid for an entire economic cycle. Temperamental’s has downgraded Spain by five notches over the past nine months. Doesn’t that shake confidence in the system?”Investors who employ our ratings know how to employ them, know why they may be volatile, that is perfectly understood and I reckon we haven’t, in circumstance, seen any alter in credibility with our ratings with investors,” says Drevon.Investors disagree. Jerome Booth, head of research at the emerging markets debt investor Ashmore, which manages $64bn (£41bn) of assets, says: “Well yes of direction they have [a credibility issue] and they have since sub-prime. Don’t forget that.”Who could forget sub-prime? Temperamental’s can’t, as investors have brought a condition against it in the US for misjudging securities backed by sub-prime mortgages.Cheyne Finance, a structured investment vehicle locate up in London, issued $3.4bn of small-term debt secured by a bundle of sub-prime mortgages. The rating agencies considered the debt investment grade, however were forced to withdraw their ratings two years later when the vehicle crumbled under the weight of unpaid mortgages.Drevon was in London at the age with responsibility for structured finance-related activities, however not derivatives. Questioned about the deal, he says: “I know, in circumstance, nothing about that specific issue. I wasn’t involved in that, so I can’t really comment on that.”Still the condition shines a blaze on the running of the rating agencies at the height of the boom, when banks were dreaming up fresh debt products every day with ever more complex structures.The investors claim Morgan Stanley, which marketed the deal, successfully pressured agencies to give the notes bigger ratings than they deserved. In an email filed with the court this month, a Morgan Stanley analyst wrote: “I attach the Temperamental’s NIR (that we finished up writing),” referring to the Cheyne fresh issue report that Temperamental’s published in August 2005.A spokesman for Temperamental’s says: “The allegation that Morgan Stanley wrote Temperamental’s fresh issue report regarding Cheyne is completely fake. Temperamental’s ratings opinions in that condition were, as always, fully independent and based on robust and objective analytical criteria.”Much if Drevon cannot recall the condition, can he speak more generally? Was there an issue with rating agencies not having enough resources before the crash? “I can only comment on what I know, which is looking at the European market and the role we play today, and the setup we have today,” he says. This seems to ignore his previous 19 years at Temperamental’s, particularly his role in London.Anyway, as Drevon points outside, this was all in the past. What about immediately? Temperamental’s has 20 staff working on eurozone sovereign ratings, including analysts, managers and researchers. Is that enough, considering the constantly changing environment and the amount of rating actions they have taken during the crisis? “Yes,” he says firmly. “It is enough since that’s the conclusion we came to.” However boy are they busy.Ratings agenciesFinancial sectorJosephine Mouldsguardian.co.uk © 2012 Twitter News and Media Limited or its affiliated companies. All rights reserved. | Employ of this content is subject to our Terms & Conditions | More Feeds
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Tagged as: answering questions, bonds, circumstance, commentators, consequences, credit risk, dread, Europe, gaze, investors, Italy, prospect credit, three times, treasury select committee
Frederic Drevon of Moody’s: ‘we are commentators on risk’
July 13, 2012
Head of Europe for the rating agency says it is just an observer and cannot capture responsibility for what investors doFrederic Drevon, head of Europe for the rating agency Temperamental’s, is very excellent at answering questions, however then he’s had plenty of practice. Since the financial crash he has been hauled in front of the Treasury select committee three times and refused to apologise for Temperamental’s role in the crisis.The Lords have had a pop at him, as have the Europeans. And they all have the same questions: were the rating agencies to blame? Don’t they constitute matters worse when they downgrade a nation struggling to pay its debts?Drevon talks slowly as if explaining the whole, complicated mess to a five-year-ancient. Temperamental’s is just an observer, putting its opinions of the market outside into the unknown. It can’t possibly capture responsibility for what investors do based on those opinions.However to what extent do the rating agencies consider the consequences of their actions? On Friday Temperamental’s downgraded Italy, and traders dread that a Spanish downgrade is not far off. If it cuts Spain to junk, does it anticipate the forced selling the go could trigger?”Gaze,” says Drevon. “We know that we are living in extremely dense times and we are not ignoring the circumstance that there is a high degree of pain in Europe fair immediately. Our role is as commentators on credit risk. On the sovereign side, we are considering the environment as it changes however we are not considering specifically, if we capture a rating action, what does that mean specifically for that institution.”However surely that is a very significant factor in terms of a nation’s prospect credit risk? “No. It’s vital for that institution, however we cannot consider that into our own analysis since then it becomes [cyclical].”That is precisely what investors are worried about. If Spain gets downgraded to junk, many investors will be forced to sell Spanish bonds. Prices fall and yields soar, so the following age Spain needs to borrow its interest rates shoot up, which makes its economic situation much worse.Drevon says the regulators are partly to blame for this herd reaction to downgrades, as ratings are often written into regulations. “We have for close to 20 years been very vocal about the circumstance that this is not the fair imitation,” he says. Immediately the rating agencies may have got more than they bargained for, with a fresh round of reforms proposed by Europe to reduce their influence.One of the EU’s concerns is the volatility of ratings, which are supposed to be valid for an entire economic cycle. Temperamental’s has downgraded Spain by five notches over the past nine months. Doesn’t that shake confidence in the system?”Investors who employ our ratings know how to employ them, know why they may be volatile, that is perfectly understood and I reckon we haven’t, in circumstance, seen any alter in credibility with our ratings with investors,” says Drevon.Investors disagree. Jerome Booth, head of research at the emerging markets debt investor Ashmore, which manages $64bn (£41bn) of assets, says: “Well yes of direction they have [a credibility issue] and they have since sub-prime. Don’t forget that.”Who could forget sub-prime? Temperamental’s can’t, as investors have brought a condition against it in the US for misjudging securities backed by sub-prime mortgages.Cheyne Finance, a structured investment vehicle locate up in London, issued $3.4bn of small-term debt secured by a bundle of sub-prime mortgages. The rating agencies considered the debt investment grade, however were forced to withdraw their ratings two years later when the vehicle crumbled under the weight of unpaid mortgages.Drevon was in London at the age with responsibility for structured finance-related activities, however not derivatives. Questioned about the deal, he says: “I know, in circumstance, nothing about that specific issue. I wasn’t involved in that, so I can’t really comment on that.”Still the condition shines a blaze on the running of the rating agencies at the height of the boom, when banks were dreaming up fresh debt products every day with ever more complex structures.The investors claim Morgan Stanley, which marketed the deal, successfully pressured agencies to give the notes bigger ratings than they deserved. In an email filed with the court this month, a Morgan Stanley analyst wrote: “I attach the Temperamental’s NIR (that we finished up writing),” referring to the Cheyne fresh issue report that Temperamental’s published in August 2005.A spokesman for Temperamental’s says: “The allegation that Morgan Stanley wrote Temperamental’s fresh issue report regarding Cheyne is completely fake. Temperamental’s ratings opinions in that condition were, as always, fully independent and based on robust and objective analytical criteria.”Much if Drevon cannot recall the condition, can he speak more generally? Was there an issue with rating agencies not having enough resources before the crash? “I can only comment on what I know, which is looking at the European market and the role we play today, and the setup we have today,” he says. This seems to ignore his previous 19 years at Temperamental’s, particularly his role in London.Anyway, as Drevon points outside, this was all in the past. What about immediately? Temperamental’s has 20 staff working on eurozone sovereign ratings, including analysts, managers and researchers. Is that enough, considering the constantly changing environment and the amount of rating actions they have taken during the crisis? “Yes,” he says firmly. “It is enough since that’s the conclusion we came to.” However boy are they busy.Ratings agenciesFinancial sectorJosephine Mouldsguardian.co.uk © 2012 Twitter News and Media Limited or its affiliated companies. All rights reserved. | Employ of this content is subject to our Terms & Conditions | More Feeds
DOWNLOAD: DirecTV
Tagged as: answering questions, bonds, circumstance, commentators, consequences, credit risk, dread, Europe, gaze, investors, Italy, prospect credit, three times, treasury select committee