DBRS, one of Wall Street’s smaller credit rating agencies, is promoting itself to prospective clients as the “stable” credit rating provider.
While ratings from other credit rating agencies might lack “stability,” meaning that they might change in a more dramatic way than a client expects, DBRS claims that it offers a more “stable” credit rating that does not “surprise” the client — at least to the degree other credit rating agencies might.
DBRS officials, who briefed Bank Innovation at a recent investor conference on the company’s approach, specifically named Standard & Poor’s Corp. as the credit rating agency that is less “stable” than DBRS.
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This sales approach of DBRS centered on “stability” is particularly disconcerting because it was the credit rating agencies’ inability to rate companies and investments with integrity that, in part, precipitated the credit crisis. The sales pitch from DBRS implies that the company’s credit ratings will not necessarily correspond to the financial facts of the investment or company being rated.
DBRS officials declined to comment.
Indeed, the company’s official mission echoes this ratings approach. The company states as one of its core competencies that:
Our independence and proven track record in rating predictability provides fixed income investors with a valuable independent opinion that represents a key tool in evaluating investment decisions.
To be fair, there is no evidence that DBRS’s ratings are more “predictable” than, say, S&P’s. But equally we could not determine why investors could be confident about DBRS ratings if DBRS’s relationship with its clients is predicated on a rating that will remain within a particular range, despite the client’s financial situation.
Currently, DBRS — which abbreviated its name from Dominion Bond Rating Service — rates more than 1,000 different companies and single-purpose vehicles that issue commercial paper, term debt and preferred shares in the global capital markets. The company is headquartered in Toronto and is one of 10 companies certified to provide credit ratings in the US. DBRS also provides ratings services in Europe. The company is privately owned by Walter Schroeder.