[FOUNTAIN]To rise and fall by a credit ratingBanks lining up to borrow money from a corporation? That strange phenomenon actually occured in London in 1998. Representatives of Japanese banks gathered at Mitsubishi’s London office to borrow cash, an opportunity from which Mistubishi profited greatly.
The situation was the direct result of an unusual decision by Moody’s Investors’ Service, one of the world’s three major rating agencies. Its decision to lower the credit ratings of Japanese banks in the midst of the Asian financial crisis caused interest rates to skyrocket, making it hard to borrow money. But the Mitsubishi corporation maintained an excellent rating, and was able to borrow at much lower rates on the London market. With a single decision, Moody’s reversed the relationship between money lenders and merchants in Japan that had prevailed for hundreds of years.
Moody’s Investors’ Service first rose to fame during the Great Depression in 1929. As one seemingly stable company after another was going bankrupt, the firms that had been declared superior by Moody’s all managed to stay in business, earning the rating agency its reputation. Moody’s even shocked the financial world by correctly predicting the order in which companies would go bankrupt. At one time, its information-gathering skills were said to be superior to those of the CIA or the KGB. Moody’s even correctly determined the amount of reserve funds in the secretive Swiss Bank to appraise its creditworthiness.
But it was after 1975 that Moody’s won its exclusive status. American law required public funds to invest in securities be deemed safe, and the Securities and Exchange Commission certified Moody’s, Standard & Poor’s and Britain’s Fitch Ratings as reliable credit rating firms. But the ensuing dearth of competition might have done Moody’s more harm than good. The firm would eventually be criticized for not giving investors early warning of the Asian financial crisis, and for missing Enron’s accounting irregularities. Ultimately, it went through the humiliation of being called before the U.S. Senate.
Moody’s recently upgraded Samsung’s credit rating by two steps, to A1, the same as that of Intel and IBM. This exceeds the A3 ranking of Korea itself. Considering Moody’s long-standing principle that a company cannot exceed the credit rating of its nation, this upgrade is quite exceptional. It means that from a credit rating standpoint, Samsung will stand strong even if Korea declares bankruptcy. For an administration that has denied any failures in handling the economy, this is truly an embarrassing moment. If the situation continues, there is no guarantee that the Ministry of Finance and Economy won’t ask Samsung for a loan.
by Lee Chul-ho
The writer is a JoongAng Ilbo editorial writer.