Powers Behind the Credit Ratings AgenciesPosted: February 14, 2012 | |
Follow the money? The news that Moody’s has downgraded the UK’s outlook to negative prompted me to check its major shareholders today, February 14th 2012, on the Morningstar database. Moody’s Corporation is based in the USA, and its largest shareholder is the giant holding company Berkshire Hathaway Inc, whose chairman and chief executive is the veteran investor Warren Buffett. Berkshire Hathaway owns 12.8% of Moody’s equity. Capital World Investors, within The Capital Group Companies, is close behind with 12.6%. Ten institutions – these two and another eight – own 57.62% of the equity.
As for Berkshire Hathaway, the biggest investor in its traded ‘B’ shares is the Bill & Melinda Gates Foundation, owning 4.10%. The other top ten shareholders are mainly US investment groups but the Government Pension Fund of Norway is among them. Warren Buffett himself owns 4.76% of the whole company, according to Forbes’ figures for April 2011.
The other two main credit rating agencies are Standard & Poor’s and Fitch. Standard & Poor’s is owned by The McGraw-Hill Companies, whose ten largest shareholders are headed by Capital World Investors, making another appearance and owning 9.99%. The ten biggest institutional shareholders between them, nine based in the US and one in the UK, own 40.08% of the equity.
Fitch has a more European feel, as it is 60% owned by Fimalac of France, a company founded by Marc Ladreit de Lacharrière, who is its chief executive. The other 40% belongs to Hearst Corporation of the US, which on February 9th 2012 agreed to pay $177 million for another 10%, so when the sale is completed Hearst will have half of Fitch Group. Hearst Corporation is the media group founded by George Hurst in 1880 and expanded into a media empire by his son William Randolph Hearst.
The largest institutional investor in Fimalac is the Government Pension Fund of Norway (appearing again) which owns 0.5% of the company. The main shareholder is Marc Ladreit de Lacharrière himself, who as at September 30th 2011 had 90.4% of the voting rights and 79.89% of the equity.
Moody’s, Standard & Poor’s and Fitch wield tremendous influence. Their sovereign debt ratings do much to determine governments’ borrowing costs. Yet they are commercial organisations, and significantly US organisations at that, with a French billionaire for company.
I’m not suggesting, at all, that the ratings agencies are anything but objective, but I question the power of commercial organisations over national affairs. The credit rating business seems to me a case of the commercial tail wagging the democratic dog into submission.