Credit rating agencies have been around for the better part of the 20th century, and have played a key role in the financial world by providing ratings on the creditworthiness of bonds and other debt instruments. These ratings are invaluable tools for investors looking to get a better sense of whether a debt instrument is worth investing in. Therefore, when assessing the level of risk associated with a bond, investors will typically look at its credit rating. Since most investors are looking for a tradeoff between risk and return on their investments, they are typically going to demand a higher interest rate for bonds that have poorer credit ratings. As a result, rating agencies play an important role in setting interest rates on debt securities.
The concept of using rating agencies to assess the level of risk associated with a debt arose around the beginning of the 20th century when three major credit rating agencies were formed. Although additional rating agencies were formed in subsequent years, the original rating agencies – Fitch, Moody’s, and Standard and Poor’s – are the most prominent. 1. Fitch
The Fitch Publishing Company was founded in 1913 by John Knowles Fitch, a 33-year-old entrepreneur who had just taken over his father’s printing business. Fitch had a unique goal for his company: to publish financial statistics on stocks and bonds. In 1924, Fitch expanded the services of his business by creating a system for rating debt instruments based on the company’s ability to repay their obligations. Although Fitch’s rating system of grading debt instruments became the standard for other credit rating agencies, Fitch is now the smallest of the “big three” firms. 2. S&P
Henry Varnum Poor was a financial analyst with a similar vision to John Knowles Fitch. Like Fitch, Poor was interested in publishing financial statistics, which inspired him to create H.V. and H.W. Poor Company. Luther Lee Blake was another financial analyst interested in becoming a financial publisher. In order to achieve this dream, Blake founded Standard Statistics in 1906, just a year after Poor’s death. Standard Statistics and H.V. and H.W. Poor published very similar information. Hence, it made sense for the two companies to consolidate their assets, and they merged in 1941 to form the Standard and Poor’s Corporation. Today, Standard and Poor’s not only provides ratings but also offers other financial services, such as investment research, to investors. They are now the largest of the “big three” rating agencies. 3. Moody’s
John Moody founded the financial holding company, Moody’s Corporation, in 1909. Although Moody’s provides a number of services, one of their largest divisions is Moody’s Investor Services. While Moody’s has conducted credit ratings since 1914, they only conducted ratings of government bonds until 1970. Moody’s has grown significantly over the years. Presently, Moody’s is the second largest of the “big three” firms. List of some World’s Credit Rating Agencies
The United States1. A.M. Best Company, Inc.2. Demotech, Inc.3. Egan-Jones Rating Company4. Fitch Ratings, Ltd.5. Kroll Bond Rating Agency, Inc.6. Moody’s Investors Service7. Realpoint, LLC8. Standard and Poors (S&P)9. TheStreet.com Ratings, Inc.10. Veribanc, Inc.
| The Uinted Kingdom1. European Rating Agency (ERA)2. Fitch Ratings, Ltd.
| Colombia1. BRC Investor Services S.A.2. Duff & Phelps de Colombia, S.A., S.C.V
| China1. Chengxin International Credit Rating Co., Ltd.2. China Lianhe Credit Rating, Co. Ltd.3. Dagong Global Credit Rating Co., Ltd.4. Shanghai Credit Information Services Co., Ltd.5. Shanghai Far East Credit Rating Co., Ltd.
| Turkey1. Istanbul International Rating Services, Inc.2. JCR Avrasya Derecelendime A.S.3. Kobirate Uluslararası Kredi Derecelendirme ve Kurumsal Yönetim Hizmetleri A.Ş.4. Saha Kurumsal Yönetim ve Kredi Derecelendirme Hizmetleri A.Ş5. TCR Kurumsal Yonetim ve Kredi Derecelendirme Hizmetleri A.S.
| Nigeria1. Agusto & Co. Ltd.2....
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