Glad I don’t work for a ratings agency…..

The Financial Times reports today that Portuguese banks have lashed out at Fitch Ratings after the rating agency repeatedly downgraded the banks over their funding and liquidity risks.

According to the report:

Banco Espírito Santo said it was terminating its contract with Fitch because there was “no valid justification” for downgrading its credit rating by three notches in less than four months.”

In a statement to the stock market authority, BES said the rating cut did not reflect the “financial soundness of the bank”, which was in a “strong position . . . to face current challenges”.

Millennium BCP, another of the country’s biggest listed lenders, said there had been “no new fact that reflects or implies a significant change in the financing conditions, liquidity, solvency or profitability of Portuguese banks”.

So here is the dilemma.  The ratings agencies have been criticized for not having detected the underlying weakness that resulted in the sub-prime crisis.  Much of this criticism is well-deserved.  Of course that criticism should be shared liberally—with governments, central banks, and regulators.

Ratings agencies and regulators are not—and cannot be—as nimble as profit-seeking financial institutions.  That is an unfortunate fact of life.  But it doesn’t that they shouldn’t try.

According to the FT article:

Portugal’s debt markets remain under pressure amid continuing investor concern that the country could be forced to seek a Greek-style bail-out.

Which makes it sounds like Fitch made the right call, even though it will cost them.