Tough times ahead for credit reporting
Jinfo Blog

25th November 2007

By Tim Buckley Owen

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Credit rating agencies have had a lot of explaining to do lately. LiveWire has previously reported http://web.vivavip.com/forum/LiveWire/read.php?i=417&start=10 that both the US Congress and the European Commission are investigating their role in the credit crunch crisis – and now the fearsome House of Commons Treasury Select Committee has also been giving them the third degree. According to the FT http://www.ft.com/cms/s/0/320bd972-92f6-11dc-ad39-0000779fd2ac.html off the record comments picked up by the parliament TV channel’s microphones before the hearing began revealed some MPs condemning the three main rating agencies as ‘a shower’. Their anger was apparently stoked by the perception that it was these foreign companies’ slowness in downgrading Northern Rock – despite having already identified the bank’s ‘unique’ exposure to liquidity drying up – that risked damaging London’s reputation as a global financial centre. And now - against all the odds just a few months back - the Economist magazine is actually starting to talk about recession. In a recent leader http://www.economist.com/opinion/displaystory.cfm?story_id=10134118 it predicted a dent in American consumer spending as the collapse in the housing market made Americans feel less wealthy and rising oil prices hit their pockets directly. The accompanying feature http://www.economist.com/world/na/displaystory.cfm?story_id=10134077 explained how America’s sophisticated financial system had allowed people progressively more access to credit. Not any more – and, according to a more recent Economist article http://www.economist.com/world/na/displaystory.cfm?story_id=10191726 one of the country’s most vulnerable spots is (gasp!) California. But the credit industry’s problems strike much closer to home than this. Shares in the UK-based Experian, the world’s largest credit reference checking company – fell 9.5% in one day on November 15, following the company’s announcement that its second half results would be hit by the credit crunch. According to Experian’s chief Executive Don Robert http://www.ft.com/cms/s/0/aa56f222-93e6-11dc-acd0-0000779fd2ac.html?nclick_check=1 the impact of the liquidity crisis on banks’ capital expenditure was having a knock-on effect on Experian's decision analytics business, which provides support software to banks. On top of that, the generally tighter personal credit market meant that there were fewer loan applicants on whom credit reports were required. By coincidence, November 15 was also the day on which information industry consultant Outsell published its Credit & Financial Information Market: 2007 Market Forecast and Trends Report http://www.outsellinc.com/store/products/537 with predictions up to 2010 based on previous size and growth figures back to 2002. Events can sometimes move a lot faster than such periodic reports can keep up with, and it will be interesting to see if Outsell has to revise its forecasts earlier than planned as a result. And as for the information professionals charged with delivering accurate, timely information to their clients – perhaps we can’t afford to rely exclusively any more on sources that we previously regarded as sufficient unto themselves.

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