Kroll Bond Rating Agency
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Before draw the conclusion of whether Jules Kroll should enter the credit rating business, we would like to use SWOT analysis to see whether this plan works or not. Lets start with strength. The leader of Kroll Bond Rating Agency- Jules B. Kroll is the strongest strength for them to enter this new industry by his successful business career and abundant experience as an entrepreneur. The previous success of the Kroll corporate intelligence firm and K2 Global Partners give not only Jules Kroll, but also investors a huge confidence that JK could do well in this bond rating industry. Secondly, lets talk about weakness. Even though JKs pervious firm had some business associated with financial services, the bond rating business is not as same as other financial services, which requires a large amount of qualified experts, issuers interest, users interest and NRSRO designation. As a new starter in this rating business, it is hard for Kroll to attract users and issuers since those people have already worked with the big three rating agency for many years. Moreover, applying for NRSRO status is a slow and expensive process. Thirdly: Opportunity. One of the biggest reasons that JK is willing to enter this rating business is the poor performances and overly optimistic ratings of the big three rating agencies during the recent financial crisis. Moreover, the “issuer pays” model drew a lot of critics on the big three rating agencies. Therefore, JK wants to create a new way in this industry that can make more accurate and reliable ratings. Last but not least: Threat. The threat of entering this rating business is huge. The big three rating agency, Moody, Fitch, and S&P almost dominate the whole market. Their great reputation and customers loyalty in this industry is not some new entrants can compare. Furthermore, there are also some new rating agencies entered this industry, such as Morningstar with previous experience and reputation in mutual funds ratings, Meredith Whitney with huge amount of expertise and the Chinese municipal rating agency Dagong with huge capital. Therefore, it is so hard for Kroll to enter this new industry. In conclusion, we could say it is a right time for Kroll to enter bond-rating industry since the big three is experiencing a hard time because of the poor performance during financial crisis. However, based on our SWOT analysis, we dont think it is a right idea because of Krolls weakness and competitors threat.
Following the collapse in creditworthiness and prices of mortgage and asset backed securities during the financial crisis of 2008, the main rating agencies were accused of facilitating a bubble in the aforementioned securities by issuing overly optimistic ratings. Many investors suffered great losses in structure securities, and the rating agencies were accused of having a conflict of interest that affected their judgment in issuing credit ratings.