It was the ratings agency that first reported the pain in Spain and cut Italy’s rating.
One of Wall Street’s most controversial and outspoken bond-rating firms won’t be silenced by critics, says its founder Sean Egan.
The pugnacious analyst at the 19-person Egan-Jones Ratings Co. suspects these critics are conducting a smear campaign to undermine his small private firm.
“Our focus on issuing timely, accurate ratings and research for the benefit of investors necessitates that we anger some people,” said Egan, president of the firm with offices in Haverford, Pa.
This past week, Egan-Jones slashed its rating on Spain for the third time in a month, to B from BB-, further propelling the ailing country into junk status. And on Friday, he dropped Italy from B+ to BB.
The controversial calls are nothing new for Egan, 54. He has even faced death threats because of his bold ratings on the debt of financial companies, multinationals and sovereign nations.
“When we said GM would have to go bankrupt, that was probably the worst,” said Egan, recalling his firm’s past downgrade of General Motors. “Yes, [the callers] said, ‘We are going to kill you.’ They’d leave a telephone message you can’t trace.”
Egan-Jones is unusually influential for a small ratings firm. Unlike the Big Three credit ratings agencies (Fitch, Moody’s and S&P), he’s paid by investors who read his reports. The big three are paid by debt issuers.
“They threatened to sue us over MBIA and Lehman,” Egan said. He was the first of his peers to cut the rating on the US from AAA to AA+. He won praise for his calls on the debt crisis in Europe and the American mortgage disaster.
“The core issue is that investors lost trillions in the 2007 and 2008 Credit Crisis, which was largely due, as Congress found, to inflated credit ratings issued by non-independent firms,” according to an Egan-Jones statement. “A firm paid by issuers has a clear conflict of interest.”
“Sean Egan has been ahead of the pack on a number of important calls,” said Lawrence J. White, professor of economics at NYU Stern School of Business. “My sense is that he’s a straight-up guy. He’s not a charlatan. He’s a valuable entity to have in this space.”
Egan is from a family of nine children in western New York and attended Harvard Business School on a scholarship. He tells of summers hauling heavy sacks of flour in a grain mill to earn money to help his family.
“Putting bread on the table was the challenge back then,” Egan said.