NRSRO
New Era Begins!
The financial markets begin a new era in 2008 with the SEC's granting of NRSRO (Nationally Recognized Statistical Rating Agency) status to Egan-Jones Ratings Company. Unlike all previously recognized NRSRO rating firms, Egan-Jones is not paid by issuers but is paid solely by institutional investors. Since issuer interests are often not aligned with investor interests, a rating firm representing investors is a welcome change. In addition to warning clients about Countrywide, New Century the monoline insurance firms such as Ambac, ACA, MBIA MGIC and Radian, Egan-Jones Ratings provided early warning to clients about the US Auto manufacturers and the homebuilders, Enron, WorldCom, the California utilities crisis, and Delphi.
A primary cause of the current credit crisis has been reliance on inflated ratings proffered by issuer-supported rating firms. The most recent high profile example was the Florida State money market pool's freezing redemptions and recording losses in excess of $1.5B as a result of investments in over-rated issuers such as Countrywide and various SIV's.
To protect investors and increase returns, hedge funds, fiduciaries and large commercial lenders would be well-served to review ratings issued by non-conflicted rating firms. Currently, Egan-Jones maintains ratings significantly different (two notches or more) than the issuer-supported rating firms on approximately 400 firms including MBIA, Ambac, Bear Stearns, Ford, GM and others.