Ratings agencies not so secure after all

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Ratings agency types who thought they had a job for life are being made to think again.

Ratings agencies have been known to promote themselves as kindly employers less inclined than investment banks to take an axe to the workforce when things go wrong. That cuddly image has just died a horrible death.

Moody's is reportedly slashing 275 jobs globally, Toronto-based rater DBRS is said to have cut three European offices and 43 European jobs, and McGraw Hill Companies, the parent company of Standard & Poors, says it's cutting 172 jobs in its financial services unit, which includes S&P.

What's a redundant rater to do? Recruiters say the outlook isn't great. "Dependent upon their function across synthetic or cash, the easiest avenue is to go into an investment bank as an analyst or structurer," says Russell Clarke at search firm Mantis Partners. "But the problem is that historically the rating process is reactive and very streamlined compared to the counterpart roles in investment banks."

The head of structured credit research at one US bank says he hasn't seen any ratings agency CVs yet, "but this might be because I've been very clear with everyone that I'm in no position to hire."

Why?

Ratings agencies' woes stem, unsurprisingly, from the credit crisis, which has seen their predictions about the robustness of structured products proven very wrong.

Meanwhile, reduced issuance of structured products means ratings agencies have substantially less to work to do. And with most agencies having rapidly expanded their structured product groups in the past few years, further cuts can't be rued out.

"We're expecting US and European leveraged loan CLO issuance to be down 50-55% relative to 2007 issuance, while SME CLOs are likely to hold on slightly better," says Domenico Picone, head of structured credit research at Dresdner Kleinwort, who also predicts that the remainder of the CDO market will fare even worse.

What next?

With neither banks nor ratings agencies chasing structured credit ratings talent, there are a few alternatives left on the table, providing those let go are willing to shift their emphasis.

The head of structured credit ratings at one agency says they're busy trying to shift staff into other areas, such as sovereign debt and the financial institutions business - "There's going to be a renewed focus on banks' own credit ratings and we need to ensure we have strong analysts in these positions."

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