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Fitch bitches about moody Moody's

Ratings agencies

Rating agency Fitch has reacted angrily to a report on collateralized debt obligations (CDOs) from rival agency Moody's. The report claims Moody's ratings of CDOs are consistently lower than those of its rivals. Fitch claims the report accuses it and Standard&Poor's of negligence and is "remarkably biased".

The argument has arisen because of a popular and relatively new form of securitization - CDOs of asset-backed securities. To give ratings on these deals, rating agencies not only have to analyze the structure of the CDO deals themselves - they also have to rate the ABS deals in the collateral if these deals were not originally rated by them. This can take a long time, and some CDO managers have complained that the turnround time in ratings of CDOs of ABS is too long.

As a compromise, the three main rating agencies have agreed to let a certain percentage of the collateral be "notched". This means that managers can assume that if a deal is assigned a certain rating by one rating agency, they can assume an equivalent rating from another rating agency. This saves time for the managers and rating agencies.

However, there is disagreement between the three rating agencies as to what percentage of the collateral should be notched, and what should be properly analyzed by the rating agency.

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