» Credit Rating Agencies Discussion

The International Monetary Fund's Global Financial Stability Report has said that rating agencies will continue to be a fundamental component in the functioning of financial markets. These CRAs are subjected to a bitter criticism and though as mentioned above they are indispensable. We shall discuss the various aspects of criticism and how WVB managed to deal with these challenges.

CRAs evaluations of credit risk are vital to many market participants who lack the sources and skills to make valuations on their own. The problem is essentially in the way these CRAs get paid as it has been subject to many changes over the years. First of all, purchasers of securities paid them and they were considered independent assessors of risk. Then, the matter became more complex as these CRAs were involved in structuring securities and were hereby paid for their efforts. After that, banks started to pay only to the highest two ranks they would receive and manipulate their independence. Finally, for maximizing profits they began to be co-originators of securities and accordingly became hesitated in downgrading the securities they helped to create.

CRAs main objective is to solve information problems and increase transparency. Heiner Flassbeck, Director of Division on Globalization and Development Strategies, UNCTAD, Geneva said: “Indeed, they have played the opposite role and made the market even more opaque. As in all former crises, agencies were too optimistic”.

Robert E. Litan, Vice President for Research and Policy at the Kauffman Foundation and Senior Fellow, Brookings Institution, thinks that the best that can be done to enhance the rating effectiveness is the CRAs' need to disclose more about rating methods and also the time periods of data used to assess default probabilities. He further suggested that ratings backed by less than ten years of data should be marked by a star or equivalent.

WVB has avoided all criticisms. This is evident in Philippe Piette (CEO of FISL/WVB) when he stated "Companies do not pay FISL to provide any ratings, instead FISL applies rigorous widely acclaimed analysis based only on data that proved to be accurate. This enables not only transparency, but also fairness to companies globally. All are assessed by the same open and transparent process". WVB insures and maintains its objectivity by committing to the original role of CRAs as an independent arbiter and refrained from participating in the process of creating new securities.

WVB only uses proved facts to maintain accuracy and transparency. The data fields in WVB reports are comprehensive and inclusive of all information required for the investor to make a sound financial decision. Philippe Piette (CEO of FISL/WVB) stated “Investors need to do their work and decide for themselves”. WVB only gives them opinions based on information gathered from authoritative sources.

WVB featured its products to include specific time formats to meet the varying needs of investors. Dossier reports include data for time period that is over 10 years while WVB Quick View reports include only data for 3 years time period.

WVB meets the needs of its clients. When Philippe Piette -CEO of FISL/WVB- heard a fund manager in Dubai seeking a way to investigate the Sharia compliance of companies in order to invest according to Islamic Sharia, WVB responded and released WVB Sharia Rating. The Sharia Rating is based on a profile similar to a credit rating and enables Islamic Investors to see how compliant a company is with different interpretations of Sharia and Islamic jurisprudence clearly. The CEO of World Vest Base commented "The objective of this product is to offer investment opportunities on Islamic principles on a worldwide basis." He continued "Fund managers now have a means to screen around the world on different levels of adherence to Sharia. On the one hand this is a simple tool, but on the other the potential implications are enormous as it is at last possible to enable people to invest according to their beliefs, confident that they are not doing the wrong thing by accident".

Using WVB Sharia Compliance rating as an example of transparency level maintained by WVB, the
methodology is available to any client who uses the rating.

To conclude, we believe that we have avoided all criticism accusations to CRAs. Our job is the collection of timely, extensive, and transparent company financial information worldwide and providing data that are essential to make sound financial decisions. As the last remaining independent and private company in this field of activity, our goal is to provide and assure an even and stable playing field to ALL market participants that are in need of global financial data at a reasonable price.

See: P.13, MAURICE R. GREENBERG Chairman and CEO, C. V. Starr and Company, http://www.international-
economy.com/TIE_F08_CreditRatingSymp.pdf.
See: P.13, Ibid.
See: P.14, Ibid.