Credit agencies attacked for acting too quickly

By Walden Siew

NEW YORK (Reuters) - Credit rating agencies, criticised for moving too slowly in cutting ratings on Wall Street firms and the complex instruments they devised, are now accused of acting too quickly.

As the credit crisis enters a new phase, the pendulum has swung too far back, critics argue. The agencies are still missing the mark, only now they are too aggressive, adding to market volatility, or changing their views within days or weeks.

Case in point: AIG.

On Friday, September 12, Standard & Poor's warned that if insurance giant American International Group Inc didn't demonstrate adequate access to capital in the short term, the rating company could cut its ratings by as much as three notches.

Late on the following Monday, S&P, Moody's Investors Service and Fitch Rating had struck a triple blow to AIG's investment-grade rating and warned more downgrades could follow.

Within 24 hours, the U.S. government had rescued AIG with an $85 billion loan, and the rating companies scrambled once again to revise their outlooks.

"AIG was a signal they are being more aggressive in today's environment," said Joseph Mason, a finance professor at Louisiana State University. "They've had their backs against the wall, and they are being forced to cut."

Credit market turmoil changed the face of Wall Street last week with the government loan for AIG, once the world's largest insurer based on market value; the bankruptcy filing of Lehman Brothers Holdings Inc, spelling the demise of a 158-year-old trading company that was the parent of a major U.S. investment bank, and the hasty sale of Merrill Lynch, the largest U.S. retail brokerage whose advertising symbol is the bull, to Bank of America.