eFinancialCareers

Heroes or villains, depending on what they report.

Rating agencies assign credit ratings to organisations and governments after calculating the likelihood of them defaulting on their traded debt products (companies issuing debt products pay the agencies for the privilege). Ratings are issued in a coded form, making it easier to make comparisons between one organisation and another. So a company rated AAA is adjudged almost 100% likely to pay on time; If a company is rated C, the risk of not being paid on time is high.

Different rating agencies use slightly varying codes for their ratings. On the whole, however, bonds ranked BAA, BBB or above are considered 'investment grade', meaning investors are likely to get their money back. Anything ranked below this is known as 'speculative grade', where repayment is less certain. While rating agencies help banks and their clients by calculating the likelihood of a default, data providers, such as Reuters, Thomson Financial (which are now merging to become Thomson-Reuters) and Bloomberg provide real-time information on the changing prices of financial products.

They also offer a wealth of other data, including news analysis and information on company accounts.

Trends

As the number of financial products to be rated expands to include not just company bonds, but derivative products based on those bonds, rating agencies are being kept increasingly busy. Moody's, for example, made £456m from analysing and rating the structured finance sector in 2006 – more than 40% of its income.

But while business may be growing, rating agencies are under fire. This is particularly the case in the US, where they failed to predict problems in the sub-prime mortgage market. Many of these were re-packaged and sold in the form of structured 'mortgage-backed bonds', which were given favourable ratings, only subsequently to default or see their rating downgraded. Critics claim that because rating agencies receive most of their money in charges paid by bond issuers, they are not always as impartial as they might be. For their part, the agencies point to their codes of transparency that they claim address these criticisms.

This hasn't stopped rating agencies piling into another growing area – the analysis of the operational risk of hedge funds. More and more hedge funds have begun issuing bonds, which offer a more stable source of financing than money from banks and individuals.

Data providers operate in a different and very competitive universe, providing banks' traders with data faster, more cheaply and on ever-fancier screens. In May 2007 the world of financial information providers underwent a seismic shift when Thomson Financial put in a bid of around £9bn for Reuters. If Thomson's bid succeeds, the new company will be called Thomson-Reuters.

Key players

The financial information world has long been dominated by Bloomberg, which accounts for around 33% of the market. But if 'Thomson-Reuters' becomes a reality, a new behemoth will challenge for the top position – the combined companies are expected to have a 34% share.

Similar to the financial information market, the rating agency sector also hosts three key players, but there are no signs of consolidation. Standard & Poor's and Moody's vie for first and second places and account for around 80% of the total of market; Fitch comes in third. Behind them are a number of other operators, such as Egan-Jones Ratings, which are miniscule by comparison.

Roles and career paths

If you work for a rating agency, you're likely to start as a research assistant, helping an analyst. Analysts typically specialise in particular product types.

Not all rating agencies have graduate recruitment schemes. Moody's offers internships to students and recruits graduates on an ad hoc basis. Fitch takes around eight graduates a year in the UK into a two-year rotational programme, where trainees rotate between corporate finance, structured finance and financial institutions. S&P recruits on an ad hoc basis.

Roles at information providers are more varied and cover everything from data analysis to technology, journalism and business development. Reuters, for instance, runs a European graduate training scheme that runs for around two years, with the potential to try varying roles and work in different offices globally.

Pay

Ratings agencies have traditionally paid a lot less than investment banks, particularly when it comes to bonuses. But as more and more of their staff leave for the structured finance desks of banks, they have been trying to make amends. Bruce Wheelan, a consultant at recruitment firm Anderson's, says bonuses in the sector were previously capped at 35% of salary, but this has recently risen to 50%, with senior staff even getting 70%. At the same time, he says, salaries have risen 10-15%.

According to Wheelan, a credit ratings analyst can now expect to earn a base salary of £45k to £65k plus a bonus of up to 40%. ITjobswatch says the average salary for an IT specialist with Bloomberg knowledge is currently somewhere between £52k and £56k.

Skills

Graduates with good quantitative skills will always be in demand, says Maren Josefs, associate director at Standard & Poor's (see her profile on the right), particularly as data providers and rating agencies are fishing from the same relatively tight pool of talent.

"Another language will also make you an attractive proposition. We are particularly looking for people with Arabic and Russian, as they are growing markets for us. Beyond that, you need to be a good communicator with solid analytical skills, be opinionated and be able to speak with authority to senior executives."

Lynne Smith, vice-president of HR for Europe, the Middle East and Africa at Moody's, also stresses communication skills: "As well as a solid academic background and sound analytical ability, we want graduates who are strong communicators capable of listening to others, as well as formulating and articulating their own opinions."

Reuters looks for different attributes across its business areas, but also specifies communication skills as mandatory. Anne Bowerman, global head of learning and development at the company, says graduates entering its business programme need to be fluent in at least three European languages: "Applicants to Reuters' journalism division need to be able to express complex issues simply, work unpredictable hours and be willing to accept international postings," she says.