Who are Standard & Poor's, Fitch Ratings, and Moody's Investor Services?

In the later half of 2011, major credit rating firms including Standard & Poor's, Fitch Ratings, and Moody's Investor Services stepped up their game and became the focal point of global finance. In fact, they seemed to make themselves financial king makers. This hub outlines a brief history of these rating services.

What do Credit Rating Services Do?

Essentially, these rating services determine the credit worthiness of securities (e.g. bonds) issued by corporations, municipalities, and national governments. They set their ratings according to the relative degree of certainty that a given corporation or national government will be able to pay off their issued debt. When one or more of these rating services downgrades the credit worthiness of a corporation or government, that corporation or government must issue new debt (bonds) at increased interest rates. This makes the issuing of debt more expensive which further embroils the entity in financial peril. In the later months of 2011, one or more of these rating services (e.g. Standard & Poor's, Fitch Ratings, or Moody's) downgraded the credit worthiness of such national governments as the United States, Greece, and Italy and was threatening to downgrade France and the United Kingdom. Due to its downgrade in November 2011, Italy was forced to sell new bonds at near 7%; a level some experts deemed unsustainable. The dilemma caused by Italy's financial woes brought the euro zone to the brink of a meltdown at the end of 2011.

Standard & Poor’s Rating Services

According to their company website, Standard & Poor’s was born in 1941 when Standard Statistics merged with Poor’s Publishing. Poor’s and Company began around 1860 when Henry Varnum Poor published History of the Railroads and Canals of the United States and followed with a second popular report, Manual of the Railroads of the United States. That publication was the first attempt by any source to assemble an extensive report which outlined the financial and operational details of the U.S. railroads. After H. V. Poor retired in 1873, his son Henry W. formed an insurance brokerage and banking firm. In 1919, Poor’s and Company merged with Moody’s Manual Co and changed the name to Poor’s Publishing Co. In 1922, Poor’s Publishing along with Standard Statistics entered the business of rating corporate bonds and municipal securities. In 1930, Poor’s and Company is forced to declare bankruptcy in the wake of the market crash of 1929.

Standard Statistics Bureau began in 1906 when Luther Lee Blake realized the need for a precise and comprehensive source of financial information for investors. In 1926, Standard Statistics became the first U.S. focused Stock Composite Index. In 1941, Standard Statistics merged with Poor’s Publishing to form Standard & Poor’s and published a new Bond Guide which presented financial information for close to 7,000 municipal bond ratings.

Fast forward to 2011, Standard & Poor’s is one of the world’s most respected bond rating services. With offices in 23 countries, Standard & Poor’s continues to be known to investors around the globe as a major source of financial- market intelligence. Today Standard & Poor’s full range of services includes market intelligence in the form of credit ratings, indices, investment research and risk evaluations and solutions.

Fitch Rating

According to their website, Fitch Ratings was founded as the Fitch Publishing Company by John Knowles Fitch on December 24, 1913. Housed in the Financial District in New York City, the Fitch Publishing Company started as a publisher of corporate financial information including statistics. The Fitch Publishing Company began rating services in 1924. It did so to meet the increasing demand for independent analysis of financial securities. At that time, Fitch unveiled its now familiar ratings scale ranging from “AAA” to “D.” In time, Fitch Ratings became one of three ratings agencies accommodated by the Securities and Exchange Commission (SEC) as a nationally recognized statistical rating organization (NRSRO) in 1975.

As of December 2011, Fitch oversaw its affairs from dual-headquarters located in New York and London. Fitch also boasted 51 satellite offices worldwide.

Moody’s

Moody's is a third financial ratings service. Over time, Moody’s established itself as a well-positioned element of the global capital markets. Moody’s accomplished this feat “by providing credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets.” Moody's Corporation (NYSE: MCO,) the parent company of Moody's Investors Service, employs an estimated 4,700 people in 27 countries worldwide.