Want to create cutting-edge analysis that fuels global capital markets, helping financial institutions, companies and even governments make critical decisions? Welcome to a career within a credit ratings agency or data provider.
While ratings agencies now perform a number of functions, their core task is to calculate the chances that an organisation or country will be able to pay back its debt (typically in the form of bonds) and meet regular interest payments.
The agencies assign letter-based credit ratings to bonds according to their assessment of the likelihood of default. A bond is considered ‘investment grade’ (of low risk, paying low interest) if it has a credit rating of BBB- or higher by Standard & Poor's or Baa3 or higher by fellow ratings agency Moody's. Riskier ‘high-yield’ bonds come with a lower rating from the agencies but pay more interest.
While ratings agencies don’t assess the credit worthiness of individual consumers, they do rate many different kinds of bonds issued by a wide range of companies, non-profit organisations, and local and national governments. The work of a ratings agency is ongoing – bonds are rated when first issued and are periodically reassessed to see if a ratings upgrade or downgrade is needed.
The ratings business is both huge and highly concentrated. Just three firms – Standard & Poor’s (S&P), Moody’s and Fitch Ratings – control around 95% of the market. S&P and Moody’s have about a 40% share each and Fitch has 15%. S&P alone employs almost 1,400 credit analysts and in 2014 it rated more than $4.3 trillion in new debt. Meanwhile, Moody’s currently tracks the debt of more than 120 sovereign nations, along with about 11,000 corporate issuers and some 21,000 public finance issuers.
The ratings agencies all offer a range of related services. While Moody’s Investor Services provides the actual credit ratings, a separate division, Moody's Analytics, offers software, advisory and research expertise.
Ratings agencies have taken their share of criticism since 2008 for not identifying many of the risks associated with the mortgage-backed securities that helped to trigger the global financial crisis. The fact that the agencies charge bond issuers for ratings services has also led to investor concern about potential conflicts of interest.
If you don’t won’t to work at a ratings agency, but are still keen on a career within the wider financial information sector, then you could consider applying to a data provider. Data providers (sometimes called ‘data vendors’) supply real-time market data – such as company share prices, exchange rates, research and analytics – to traders, investor and other key players in the financial sector. The data could be ‘pre-trade’ such as the bid/ask data need to price a financial instrument or ‘post-trade’ such as the most recent trade price.
Data providers also offer market-tracking tools, software and hardware to financial institutions. In 2014 alone, Bloomberg installed 5,660 of its famous desktop ‘terminals’ – its core product that powers more than 320,000 subscribers to move markets.
Bloomberg and arch rival Thomson Reuters dominate the data sector, with 31.99% and 25.88% market shares in 2014 respectively, according to Burton-Taylor International Consulting. FactSet is a long way behind in third place, while other players include Dow Jones/Factiva, Interactive Data, Morningstar, SIX Financial Information and IRESS. Bloomberg and Thomson Reuters are also financial news services, employing their own journalists and news presenters. And the sector as a whole is massive – Thomson Reuters alone generated $12.6bn in revenues in 2014.