Meredith Whitney
Meredith Whitney
Meredith Whitney
TO: File
On November 10, Chairman Schapiro, Didem Nisanci, Robert Cook, Ricardo Delfin, and
James Burns met with Meredith Whitney of Whitney Advisory Group to discuss matters
germane to the referenced file number, including the requirements for registration of a firm as a
nationally recognized statistical rating organization.
MEREDITH
WHITNEY
MEREDITH WHITNEY
Meredith Whitney Advisory Group LLC/Meredith Whitney Securities LLC
212-542-4321
meredith@meredithwhitneyllc.com
Key Points
and ineffective.
- Litany of lawsuits against S&P and Moody's reflects lack of effective oversight
MEREDITH
WHITNEY
ADVISORY GROUP LLC
2
Nationally Recognized Statistical Rating Organization
• An NRSRO is a credit rating agency that issues credit ratings that the SEC permits other financial
firms to use for certain regulatory purposes. As of 9/25/2008, there were 10 organizations:
• Many pension funds, banks, etc. demand that ratings be from an NRSRO.
• Often-times, large CRAs receive non-public information from issues (SEC Regulation Fair
Disclosure states a CRA may only use such information if their ratings are made to the public for
free ).
1. Moody's Investor Service (1975) 6. Japan Credit Rating Agency, Ltd (2007)
2. Standard & Poor's (1975) 7. R&I, Inc. (Japanese, 2007)
3. Fitch Ratings (1975) 8. Egan-Jones Rating Company (2007 after 9yrs)
4. Dominion Bond Rating Service, Ltd 9. LACE Financial (2008) - also investor paid biz
(Acquired 9/10)
·Canadian top CRA, 2003
10. Realpoint LLC (2008) (Morningstar acquired 3/10)
5. A.M. Best Company (insurance, 2005)
MEREDITH
WHITNEY Sources: http://www.sec.gov/answers/nrsro.htm. SEC, company websites, and MWAG.
ADVISORY GROUP LLC 3
Competitive Landscape
MEREDITH
WHITNEY
ADVISORY GROUP LLC
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NRSRO's - Competitive Landscape
• Moody's Investor Service, Standard & Poor's, & Fitch Ratings are top players, 90-95% market share.
• Dominion Bond Rating Service, Ltd: 201-500 employees, most frequently move to Moody's after
o Family owned business, Canadian focused.
• Japan Credit Rating Agency, Ltd: 90 employees, Paid-in Capital;;:; JPY 584 mil ($6.8M)
o Main biz areas: rating of LT and ST debt (MTNs and ABS); research on domestic and foreign financial
markets and on industry trends; research on foreign political and economic conditions; publication and info
service relating to ratings and research activities.
o Also rates Sovereigns & Supranationals, Medical Institutions and Educational Institutions.
MEREDITH
WHITNEV Sources: http://www.sec.gov/answerslnrsro.hlm SEC, company webs~es, and MWAG.
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ADVISORY GROUP LLC
MW Credit Ratings - Org Chart
Key Assumptions/Drivers:
-Used DBRS' total headcount .....200 as base model for initial build-out (they are #5 player)
Business
Segments
MEREDITH
WHITNEY
ADVISORY GROUP LLe 6
Methodology
MEREDITH
WHITNEY
ADVISORY GROUP LLC
7
MW eRA Projections
MEREDITH
WH ITNEY Sources: Company reports and MWAG.
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ADVISORY GROUP LLC
Operating Structure
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WHITNEY
ADVISORY GROUP LLC
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Reputations LosUReputations Preserved
Since the onset of the credit crisis, Moody's and S&P have struggled to improve their heavily
tarnished images.
-In fact, both have taken restructuring charges and have guided to higher expense bases going
forward resulting from efforts to build out compliance, disclosure, and more analysts.
Herein lies our opportunity: We have been dealing with extensive compliance efforts in equity
-In fact, our brand is associated as being early to identify risks and protecting investors.
MEREDITH
WHITNEY
ADVISORY GROUP LLC 10
Our Approach Focuses on Both Macro and Micro Issues
-Our thesis on homeownership led us to be early when predicting Problems With the Banks.
-Our thesis on tepid HAMP results shapes our thesis on a Double Dip in Housing.
-Our Research on regulatory analysis led us to be early when predicting capital raises caused by
rating agency downgrades summer 2007-late 2008.
MEREDITH
WHITNEY
ADVISORY GROUP LLC
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Sources
http://www.dbrs.com/
http://www.ambest.com
http://www.jcr.co.jp/english/
http://www.r-i.co.jp/eng/
http://www.egan-jones.com/assets/docs/CFA0/020Institute o/020
0/020Solvingo/020theo/020Credito/020Crisis.pdf
http://www.egan-jones.com/
http://w4.stern.nyu.edu/news/news.cfm?docjd=4744
http://www.sec.gov/answers/nrsro.htm
MEREDITH
WHITNEY
ADVISORY GROUP LLC
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