What is Fitch Ratings?
Fitch Ratings is an award-winning international credit rating agency. It ranks among the “Big Three credit rating agencies,” with the other two being Moody’s and Standard & Poor’s.
Fitch Ratings provides forward-looking credit opinions (“ratings”) on investments, which reflects its likelihood of default. The credit ratings provided by Fitch are utilized by investors, intermediaries (such as investment banks), issuers of debt, and businesses and corporations.
- Fitch Ratings is an award-winning international credit rating agency that is headquartered in both New York and London.
- The company was founded in 1913 by John Knowles Fitch.
- The two most common rating scales by Fitch Ratings are their (1) long-term issuer credit rating scale and (2) short-term issuer credit rating scale.
Brief History of Fitch Ratings
American economist John Knowles Fitch founded Fitch Ratings in 1914. In the 1920s, Fitch introduced the AAA through D rating system, which is now the most used rating system in the credit rating industry. In 1975, Fitch Ratings was recognized as a nationally recognized statistical rating organization (NRSRO) by the Securities and Exchange Commission (SEC).
In 1997, to increase its global presence, Fitch Ratings merged with IBCA Limited, an NRSRO that was headquartered in London. In 2000, it acquired Duff & Phelps Credit Rating Co., an NRSRO headquartered in Chicago, and Thomson BankWatch, one of the world’s largest bank rating agencies at that time.
Today, Fitch Ratings employs over 2,000 individuals and runs 38 global offices, and is one of the largest credit rating agencies in the world. Recently, in July 2020, the company was recognized as the most transparent credit rating agency in Environmental Finance’s Sustainable Investment Awards.
Fitch’s Rating Scales
The two most common rating scales by Fitch Ratings are their (1) long-term issuer credit rating scale and (2) short-term issuer credit rating scale.
Long-Term Issuer Credit Rating Scale
*Investment-grade categories ratings that reflect a relatively low risk of default. **Non-investment grade categories ratings that are speculative.
It should be noted that +/- modifiers are used for each category between AA and CCC (e.g., AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC+, CCC, CCC-).
Short-Term Issuer Credit Rating Scale
Criticisms of Credit Rating Agencies
Over the years, credit rating agencies faced extreme scrutiny for playing a key role in the 2008 Global Financial Crisis. During the financial crisis, caused by the collapse of mortgage-backed securities, the rating agencies were giving AAA ratings to junk mortgage-backed securities.
As a result, it gave investors false confidence that the mortgage-backed securities were safe investments when they were not. According to the New York Times, of the AAA-rated mortgage-backed securities issued in 2006, 93% were downgraded to junk status by 2010.
CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful: