IBCA, a London-based rating agency., views banks from a different perspective than its peers.
All rating agencies get the same data, notes Robin Monro-Davies, managing director of London-based IBCA Ltd. How that information is interpreted is another matter altogether, he observes.
The distinction makes a big difference in the way IBCA and other rating agencies evaluate banks.
In most countries outside the United States, Mr. Monro-Davies points out, the participation and support of the state (for banks) is important and has to be taken into consideration.
As a result, IBCA often pays more attention to government backing for a particular bank than other rating agencies might.
"I think we probably pay greater weight to government support than the U.S. agencies [do]," he said.
Combined with other factors, this often gives IBCA a different perspective on banks. It also often makes the agency slower to upgrade or downgrade institutions than some of its more aggressive U.S. counterparts.
Hung In with Swiss Banks
In some cases, the differences can be striking. In 1989, for example, Moody's Investors Service gave 23 banks its top rating of aaa, but IBCA granted the top rating to only nine.
Five years later, Moody's has cut the number of banks with aaa ratings to three. In contrast, IBCA has reduced its own triple A ratings to six banks.
Similarly, when Moody's downgraded both Swiss Bank Corp. and Credit Suisse after high provisions for problem real estate lending, IBCA left its triple A rating on both banks unchanged. The two institutions last year posted record profits.
Set up 16 years ago as a bank credit rating firm, IBCA is the only rating agency outside the United States of international significance.
Started as Fox-Pitt Unit
The agency started out in 1978 when several shareholders in Fox-Pitt Kelton, a London-based brokerage that dealt mainly in U.S. bank and insurance securities, decided to begin doing formal ratings.
Fox-Pitt had already been informally grading financial institutions after the failure of several major banks - including Germany's Herstatt Bank and New York State's Franklin National Bank - in the early 1970s.
"The banking crises made people realize that no one had really worried much about banks since 1945," Mr. Monro-Davies noted.
"Hardly anyone, with the exception of Moody's and Standard & Poor's did any ratings [on non-U.S. banks] at all."
At the time, even Moody's and S&P confined their ratings largely to U.S. banks.
After a long battle with the Securities and Exchange Commission, IBCA in 1990 became one of six accredited rating agencies in the United States.
Nonetheless, the agency's indirect but still close relationship with Fox-Pitt was rapidly proving itself untenable.
"We became increasingly aware that we couldn't mix brokerage-dealing with research," Mr. Monro-Davies said.
Management Owns 30%
After fending off several bids from competing rating agencies in an effort to keep IBCA independent, Fox-Pitt shareholders in 1992 sold their 70% stake in IBCA to Centenaire Blanzy, a French corporation. At the same time, IBCA merged with Euronotation, a Paris-based rating agency.
The remaining 30% stake in the firm is owned by the company's management, including Mr. Monro-Davies.
Originally created with the intention of serving as a specialized European rating agency, IBCA has internationalized rapidly.
The agency now has offices in London; Paris; New York; Tokyo; Barcelona, Spain; Sao Paulo, Brazil; and Brisbane, Australia. It has also acquired stakes in Rating Agency Malaysia in Kuala Lumpur, PCA in Buenos Aires, and Republic Ratings Ltd. in Johannesburg.
The main reasons: "You need people on the ground to do good analysis and you need a broad investor base," says Mr. Monro-Davies.
IBCA is still expanding and holding talks on acquiring stakes in other rating agencies in Latin America and the Far East.
Rates About 350 Banks
"The pressure has come from the emerging markets," says Mr. Monro-Davies. "The rehabilitation of Latin America - coupled with the search for yields - means we have to look at banks that might not have been important only a few years ago."
IBCA rates around 350 banks as well as European corporations, and this year launched sovereign-country ratings.
But it is unlikely to much increase the number of banks it tracks, since the list already includes most banks active in international and U.S. capital markets.
IBCA's long battle to achieve international recognition is something of a personal triumph for Mr. Monro-Davies, who almost single-handedly built the operation and fought a three-year battle with the SEC for recognition in the United States.
A graduate of Britain's renowned Dartmouth naval academy, the 53-year old former fighter pilot spent 10 years aboard aircraft carriers in Southeast Asia, but quit the British navy in 1968 as it was scaling back its overseas operations.
He subsequently obtained a masters degree in business from the Sloan School of Business at the Massachusetts Institute of Technology, and spent a year with the New York-based fund manager Reich & Tang before joining Fox-Pitt in 1973.
An Edge in Europe
IBCA has been rating U.S. banks since 1985, but its close contacts with the European financial and economic scene give it an edge in Europe.
Mr. Monro-Davies says he has no intention of becoming involved in rating U.S. corporations.
Taking a quick overview of the world, the British analyst sees a broad improvement in U.S. bank ratings, a mixed picture for banks in Europe, and what he terms "two to three years of work in Japan to build adequate reserves."
In contrast to some other rating agencies, he remains fundamentally confident about Japanese banks.
Battle for Disclosure
"My view on Japan is that the situation among banks, with the exception of small banks, is largely stable," Mr. Monro-Davies says.
As credit rating agencies have expanded quickly around the world, getting non-U.S. banks to disclose information has frequently been an uphill battle.
Although many banks are now more willing to open their books, Mr. Monro-Davies admits calling a rating isn't easy.
"One of the oddities of ratings is that it's difficult to prove you're right or wrong unless the particular institution goes bust," he says.
"But regardless of whether you're right or wrong, the rating you assign will affect people's abilities to borrow money."