Fitch Ratings

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Fitch Ratings Inc.
Subsidiary
IndustryFinancial services
Founded1914; 104 years ago (1914)
FounderJohn Knowles Fitch
HeadquartersNew York City, New York, U.S.
Key people
Paul Taylor
CEO , Ian Linnell, president, Theodore E. Niedermayer
CFO
RevenueIncrease $732.5 million (2011) [1]
OwnerHearst Corporation[2]
Number of employees
2,000 (approximate)
Websitefitchratings.com

Fitch Ratings Inc. is one of the "Big Three credit rating agencies",[3] the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975.

Fitch Ratings is headquartered in New York, US.[4] Hearst owns 100 percent of the company following its acquisition of an additional 20 percent for $2.8 billion on April 12, 2018.[2] Hearst had owned 80 percent of the company after increasing its ownership stake by 30 percent on December 12, 2014, in a transaction valued at $1.965 billion. Hearst's previous equity interest was 50 percent following expansions on an original acquisition in 2006.

Hearst had jointly owned Fitch with FIMALAC SA, which held 20 percent of the company until the 2018 transaction. Fitch Ratings and Fitch Solutions are part of the Fitch Group.

The firm was founded by John Knowles Fitch on December 24, 1914 in New York City as the Fitch Publishing Company. In 1989, the company was acquired by a group including Robert Van Kampen.[5] In 1997, Fitch was acquired by FIMALAC and was merged with London-based IBCA Limited, a FIMALAC subsidiary.[6] In 2000 Fitch acquired both Chicago-based Duff & Phelps Credit Rating Co. (April) and Thomson Financial BankWatch (December).

Fitch Ratings is the smallest of the "big three" NRSROs, covering a more limited share of the market than S&P and Moody's, though it has grown with acquisitions and frequently positions itself as a "tie-breaker" when the other two agencies have ratings similar, but not equal, in scale.

In September 2011, Fitch Group announced the sale of Algorithmics (risk analytics software) to IBM for $387 million.[9] The deal closed on October 21, 2011.[10]

Investment scale[edit]

Fitch Ratings' long-term credit ratings are assigned on an alphabetic scale from 'AAA' to 'D', first introduced in 1924 and later adopted and licensed by S&P. (Moody's also uses a similar scale, but names the categories differently.) Like S&P, Fitch also uses intermediate +/− modifiers for each category between AA and CCC (e.g., AA+, AA, AA−, A+, A, A−, BBB+, BBB, BBB−, etc.).

Investment grade

  • AAA : the best quality companies, reliable and stable
  • AA : quality companies, a bit higher risk than AAA
  • A : economic situation can affect finance
  • BBB : medium class companies, which are satisfactory at the moment

Non-investment grade

  • BB : more prone to changes in the economy
  • B : financial situation varies noticeably
  • CCC : currently vulnerable and dependent on favorable economic conditions to meet its commitments
  • CC : highly vulnerable, very speculative bonds
  • C : highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations
  • D : has defaulted on obligations and Fitch believes that it will generally default on most or all obligations
  • NR : not publicly rated

Short-term credit ratings[edit]

Fitch's short-term ratings indicate the potential level of default within a 12-month period.

  • F1+ : best quality grade, indicating exceptionally strong capacity of obligor to meet its financial commitment
  • F1 : best quality grade, indicating strong capacity of obligor to meet its financial commitment
  • F2 : good quality grade with satisfactory capacity of obligor to meet its financial commitment
  • F3 : fair quality grade with adequate capacity of obligor to meet its financial commitment but near term adverse conditions could impact the obligor's commitments
  • B : of speculative nature and obligor has minimal capacity to meet its commitment and vulnerability to short term adverse changes in financial and economic conditions
  • C : possibility of default is high and the financial commitment of the obligor are dependent upon sustained, favorable business and economic conditions
  • D : the obligor is in default as it has failed on its financial commitments.

Fitch Solutions[edit]

Launched in 2008, Fitch Solutions offers a range of fixed-income products and professional development services for financial professionals. The firm also distributes Fitch Ratings' proprietary credit ratings, research, financial data, and analytical tools.

Criticism[edit]

The main credit rating agencies, including Fitch were accused of misrepresenting the risks associated with mortgage-related securities, which included the CDO market. There were large losses in the collateralized debt obligation (CDO) market that occurred despite being assigned top ratings by the CRAs.

For instance, losses on $340.7 million worth of collateralized debt obligations (CDO) issued by Credit Suisse Group added up to about $125 million, despite being rated AAA by Fitch.[7] However, differently from the other agencies, Fitch has been warning the market on the constant proportion debt obligations (CPDO) with an early and pre-crisis report highlighting the dangers of CPDO's.[8]

See also[edit]

References[edit]

  1. ^ Group, Fitch. "2011 Fiscal". FIMALAC. Retrieved 26 March 2012.
  2. ^ a b "Fitch Group Becomes a Wholly-Owned Hearst Business". hearst.com. Retrieved April 12, 2018.
  3. ^ Blumenthal, Richard. "Three credit rating agencies hold too much of the power - Juneau Empire - Alaska's Capital City Online Newspaper". www.juneauempire.com. Retrieved 19 March 2018.
  4. ^ http://hugin.info/143461/R/1601708/505879.pdf
  5. ^ "Group Buys Fitch Investors". Wall Street Journal, Eastern edition; New York, N.Y. New York, N.Y., United States, New York, N.Y. 1989-04-21. p. 1. ISSN 0099-9660. Retrieved 2018-05-09 – via ProQuest.
  6. ^ Lavin, Douglas (1997-10-17). "France's Fimalac Purchases Fitch From Van Kampen". Wall Street Journal, Eastern edition; New York, N.Y. New York, N.Y., United States, New York, N.Y. pp. –4. ISSN 0099-9660. Retrieved 2018-05-09 – via ProQuest.
  7. ^ Tomlinson, Richard; Evans, David (2007-06-01), "CDOs mask huge subprime losses, abetted by credit rating agencies", International Herald Tribune
  8. ^ Linden, Alexandre; Neugebauer, Matthias; Schiavetta, John; Zelter, Jill; Hardee, Rachel (2007-04-18), First Generation CPDO: Case Study on Performance and Ratings

External links[edit]