Most finance experts would expect that the two would be Standard & Poor's Corp. and Moody's Investors Service Inc., the two New York firms that have long dominated the debt review business.
But the New York big boys have had to fight for the second spot at the Park District. First place has belonged to Fitch IBCA Inc., a little-known but hungry upstart that's busting into the suddenly not-so-clubby world of government finance.
Battle lines are drawn
Though Fitch, which has headquarters in both New York and London, clearly is still No. 3, it's making a run around the country. And it claims that its market share of the uninsured government-bond rating business has climbed more than 40% in the past two years, to $52 billion from $36 billion.
Competitors whisper that Fitch is buying its way in with sweetheart bond ratings that are slightly higher than they should be. Fitch scoffs at the claim, saying it just works harder to find value.
The firm's muni move is beginning to spill over to the corporate side -- a result of its December merger with International Bank Credit Assessment, a British company that specializes in rating bank debt.
"There's a significant growth in respect for their ratings," says Walter Knorr, the city of Chicago's chief financial officer. "They're aggressive on price, and competitive."
S&P and Moody's are far from waving a white flag, but they recognize they're in a fight.
"To maintain a (client) relationship, we will do whatever it takes," declares Harry Zachem, vice-president and senior credit officer for Moody's, who covers Chicago and other local governments from New York. A Fitch rating "is a me-too rating," sniffs a Moody's spokeswoman.
Heading Fitch's drive in Chicago is Michael D. Belsky, 39, a former
Northern Trust Co. bond official and part-time politician (a councilman in suburban Highland Park). His and the company's goal: "To be the equal to S&P and Moody's, if not the rating agency of choice.
"I think we're turning the corner now," he adds.
Local governments and companies clearly are thrilled, because the competition allows them to play one firm against the other, yielding better prices and service.
No lower standards
On the corporate side, Fitch long has rated the debt of such major companies as Sears Roebuck & Co. and Quaker Oats Co., but is expanding, particularly in the banking sector, where it's reaping dividends from the new field of commercial-mortgage-backed securities.
Fitch's Mr. Belsky flatly denies that the firm has bought business by lowering its ratings standards. "We don't do that." Rather, because the company tries harder than its competitors to keep higher-paid veterans on its staff, it can employ "more cutting-edge" techniques that sometimes result in better ratings, he says.
Studies by the
Federal Reserve Bank of New York and others have found that Fitch's ratings are somewhat higher than Moody's and S&P's.
Mr. Belsky pegs the start of the firm's turnaround to 1989, when Fitch was purchased by an investment group that included Robert Van Kampen, of the suburban Chicago mutual fund and real estate family.
Despite the gains, Fitch is not yet a peer of Moody's and S&P. Though its market share has skyrocketed, it started from a low level and has failed to crack Moody's strong base among small governments, which often use only one rating company. Last year, Fitch says it rated 17% of such debt, accounting for 58% of total dollar value.
The competition definitely is stirring, however.
S&P opened its own Chicago office in 1994, and it now has 11 staffers, says Managing Director Sarah Eubanks. "S&P is the market leader" and actually has gained share in the Midwest in recent years, she says.
"We like competition," Ms. Eubanks says.
Mr. Belsky says he does, too.
