UK
Ratings agencies aren’t looking particularly hot as a result of Andrew Cuomo’s latest investigation into what precisely went wrong in the world of CDOs. As blog Naked Capitalism points out, agencies were either duped or dumb. Neither sounds particularly appealing.
Five years ago, banks were all over ratings agencies. The New York Times claims that, “companies like Goldman offered million dollar pay packages” to poach agencies’ best staff, many of whom then ended up working with banks where they liaised with their former ratings agency colleagues on ‘AAA’ rated CDOs.
“Back in 2004 and 2005, banks were hiring out of ratings agencies so that they could get an understanding of their models,” says Alex Tracey of CP Search. “In 2006 and 2007 they were hiring structured credit analysts out of ratings agencies simply because people there were cheap – they were all really, really poorly paid.”
Welcome to the future
Needless to say, the bottom has now fallen out of the structured credit ratings business and banks aren’t busting to hire agencies’ CDO geniuses any more.
Although agencies are still receiving annual payments of up to $50k to report on the performance of AAA rated CDOs which have proven anything but (less than a year after the Abacus deal 100% of the triple A rated bonds had been downgraded), business is now down substantially. In 2006, Moody’s earned $667m from rating structured credit products; in 2009 it earned $305m.
At the same time, pressure is on the industry to reform. Regardless of whether the agencies were dupes or dolts, the US Congress is pushing for new ratings agency rules including a clearing house to determine who rates structured finance products.
Meanwhile, agencies have also made themselves deeply unpopular in Europe, resulting in dubious-sounding proposals to create a ‘European ratings agency’, while Bloomberg has got in on the act with proposals to create an ‘automated ratings service.’
And, in agencies’ favour…
Despite all this, ratings agencies are hiring. They also offer interesting jobs with (assuming you work with sovereign debt ratings) a ringside seat to the sovereign debt crisis.
What ratings agency don’t offer, is high pay. While banks have substantially increased salaries in the front office, employees and recruiters tell us that ratings agencies haven’t. Salaries for credit researchers in investment banks can now be double those in agencies; nor do agencies pay big bonuses to compensate.
However, ratings agencies do have some things going for them.
“Candidates working at ratings agencies have often commented to me that the environment there is more cerebral than you get with the pressures of the trading floor,” says Adrian Marples at search firm Kinsey Allen. “Agencies are also the ideal place to develop very strong analytical skills, which you can either build in that environment or transfer to the buy or sell side.”
Tracey is a little more blunt: “The only benefit for working for a ratrings agency is that it’s a stepping stone to getting into a bank or a hedge fund,” he says. “If you can’t get into banking out of university and you do a few years in a ratings agency, banks and hedge funds will suddenly hire you.”
the only situation which would drive me into a ratings agency is if i was working all hours for the Agricultural Bank of Bengali in Croydon High Street.
I applied for a job at Moodys years ago, and didn’t get shortlisted. This makes me feel like self-harming…
As is often the case, crises in confidence create vulnerabilities in some areas and opportunities in others. For job seekers looking for a position, albeint not necessarily a high-paying one, this particular case is a win-win situation. The article is correct. The Big Three Credit Rating Agencies are hiring to plug the holed that have been found in their dykes, reinforce their bulwarks, and explore alternative methodologies. For the entrepreneurially oriented, a number of other firms, including Rapid Ratings (my firm, rapidratings.com), are gaining traction with opportunities to educate risk managers about alternative ways of measuring and managing financial health risk. Starting salaries are often considerably lower with “maverick” firms but upside potential may be higher.
same here, I missed fitch twice, was depressed, but am fine now, dont want to cheat innocent investors. its a tragedy, what these people are doing truly heart breaking.
Sui Cidal…. think of it this way – you probably would have been if you had got the job.
out of curiosity, what’s the career progression like at rating agencies? And how much comp (ALL in) are you expected to make at the various levels?
THanks!
‘not rating agent’ – Ratings agencies pay well (in my opinion anyway) …. your not going to be able to get a ‘new’ helicopter with your bonus, but …. it’s not as bad as the article makes out.
A friend of mine (about 29 or 31 years old) landed a role in New York as his first job after a Columbia MBA in 2007. He started on USD $140,000, a USD $25,000 sign on bonus, and a guaranteed year 2 salary of $160,000 or 180. He did an internal training course, then started rating ‘CDO’s’ (yep). The rating agency he was with was grossing about USD $1 mill per MBA each year then, so was very keen to hire more MBA’s. His boss a few steps above would sometimes use the Wall St helipad to get to work.
That was 2007 though.
But, ratings firms operate in a different business space to other financial service firms – low volume, high margin, PLUS no competitiors (only 3 main firms). It’s generally 9 to 5 work, give or take a few busy times in the year – I’d recommend them if you get a chance.
Job for life (generally), low stress (relatively) , easy money, lots of overseas offices, which they actually send you to if you want (instead of just talking about it), good expense account
Rating agencies will have credibility when the USA is no longer AAA rated, until then their ratings are for lemmings only. Do your own analysis
Xanthus, that sounds good, thaks for that info! What kind of profile do you think they look for? I am currently doing audit at a Big4 in financial services industry, so gaining some pretty solid technical skills. Is that a standard path? ACA -> rating agencies?
Thanks!
‘not rating agent’ – hi. No problem.
Re: profile – they have a few business lines, so the profile of new staff depends on the business line – main business is corporate debt ratings, and sovereign debt. Sovereign ratings want hires from the central bank, or Gov treasury etc .
Audit sounds good background for corporate, so call S&P London, Madrid, Paris, etc and ask to speak to ‘head of debt ratings’ (or whatever their job title is). Persevere with the receptionist etc, and when you finally get to speak to them, say your interested in a role, and if they have time for a coffee and a chat – you buy the coffee. You could perhaps get the persons name from the paper, as S&P/Moody’s are quoted many times in paper each day (so this would save hassle of chatting to receptionist)
They are nice, polite and friendly chaps, always looking for good candidates. Not looking for loose canons, smart arsxxx, or diamond geezer types. And if they have nothing at moment, ask if OK for you to contact him/her in 3 months (and then diarise it for exactly 3 months) – something will pop up eventually. Try to avoid HR department and send CV direct to ‘head of’.
Good luck