Recent decisions analysed by The Slog (AKA John Ward)
Fitch was first to cast doubt upon France’s credit rating, first to upgrade Greece after last week’s debt-swap, and yesterday put Britain on negative outlook for its AAA status. Can we be sure these decisions are truly objective? One hugely notable feature of the last twelve months has been the growing campaign by indebted sovereign politicians to mouth off against the ratings agencies, but as ever this reflects only the petulance of thos who back into the spotlight of life.
Rather, I think, we should look more closely at the monied people behind Fitch.
The privately-owned and family controlled Hearst Corporation has spent some $1.4 billion buying into the ratings agency Fitch since March 2006. As of three weeks ago, Hearst owns 50% of it. I still don’t really understand why anyone would want a company whose decisions make or break markets to be in the hands of a media-owner, but there you are.
The other half of it is owned by Fimalac – a French combine that is the personal fiefdom of Homme d’Affaires Marc Ladreit de Lacharriere. On selling the last of his majority in Fitch last month, de Lacharriere stipulated that he must remain Chairman of Fitch come what may until he reaches 80 years old – in nine years time. Why?
Ladreit de Lacharriere is a founding member of the so-called Robespierre Group who were at the prestigious Ecole National d’Administration together at the end of the 1960s. A billionaire, he has been described by Le Monde as ‘the most powerful unknown quantity in France’. Influential Paris magazine Les Inrocks last week called him ‘a financier and malign mercenary’.
M. Lacharriere is a personal friend of Jacques Chirac, and a right wing cultural philanthropist. Fitch generated over a third of Fimalac’s profits when it was wholly owned by Fimalac: the agency’s earnings having trebled during Fimalac’s ownership, but nevertheless since 2006 the French entrepreneur has sold half of it to Hearst. Why? Until February 18th this year – when the Hearst holding hit 50% – Fitch had been the only-non U.S. rating agency among the world’s three largest rating firms.
Significantly, Lacharriere detests French President Nicolas Sarkozy.
Let’s trace some of Fitch’s recent decisions.
Last year it was the first ratings agency to put France on negative outlook for its sovereign credit rating. As a result of this, Sarkozy’s poll popularity slumped to 32%.
The French banks stand to lose by far the most if Greece defaults, and Lacharriere counts most of the senior players as personal friends. Bizarrely, it upgraded Greece earlier this week – two days after an official ISDA default decision – a decision most observers found inexplicable. But then, both France and America dread an uncontrolled Greek default. And as of last month, Hearst owns 50% of Fitch.
This later decision contrasts completely with what Reuters reported as the Fitch position last June: ‘”Fitch would regard a [Greek] debt exchange or voluntary debt rollover as a default event and would lead to the assignment of a default rating to Greece” Andrew Colquhoun, head of Asia-Pacific sovereign ratings with Fitch, said at a conference in Singapore.’
Fitch has done an about-face. Why?
Yesterday, it alone put the UK on warning of losing its AAA sovereign credit status. Does that have any special significance? Who knows? Because you see, we know even less about the Hearst empire than we do about Fimalac.
120 years after its foundation and development by the notorious William Randolph Hearst, the Hearst Corporation remains one of the top ten privately, family-owned businesses in the world. It has never floated, and unlike Newscorp it does not court publicity in any way. In stark contrast to the Murdoch family and entourage, Hearst displays no political bias at all. In fact, its political contributions are scrupulously kept at 49% each for the main Parties, and 2% for minority political causes. But in excess of 300 magazine titles and 47 websites around the world are controlled by this one family firm. A firm that has invested well in excess of a billion dollars in moving towards a controlling stake in a ratings agency. Why?
I’ve been Googling about Hearst for the last two days, and I can tell you their profile is beyond low and well into secretive. I have yet to find a single rationale, mission statement, future projection or marketing viewpoint from the company. The jobs site Vault has no – zero – insider reviews of what it’s like to work at the company. Of all the business articles I have found relating to management changes, hirings and acquisitions, not a single one contains any quote as to the game plan or why they did something, beyond the usual spin vapours about “an ever-changing media landscape” and other similar bollocks.
“I would call them patriotic,” said a senior New York media honcho who didn’t want to be named “and that’s it. They’re the nearest thing we have over here to the Kremlin”.
There is every sign that the Hearst Corporation is, in fact, a very traditional company and absolutely squeaky-clean. But do we think that a secretive family (descended from a man who made or broke US Presidents) and a French billionaire who wants Sarkozy out and Greece to survive, are really what one would ideally want as the owners of a global business and sovereign credit ratings company?
Contemporary Crony Capitalism finds such questions, on the whole, naive and laughable. But they aren’t.