The debate about the culpability of the rating agencies in the financial crisis of 2008 always puts me in mind of a talk that I attended in DIT in 2007. A representative of one of the large Dublin estate agencies was presenting a talk on the Irish commercial property market. Back then all the talk was of a ‘wall of money’. You may recall the hubris of the day.
In any case S&P had at that time just released a detailed analysis of the Irish property market. The basis of the S&P analysis was simply that Irish yields would revert to mean and that this mean would be similar to the historical mean that had been recorded in the UK over many years. This seemed eminently sensible to me, although the result of this analysis lead S&P to conclude that Irish commercial property values would fall by between 50-70% ‘peak to trough’. Uncomfortable as this prediction was at the time, it was hard to argue with the logic. Putting this point to the presenter, he refuted the basis of the S&P argument. The ‘wall of money’ argument and so on. Well, fair enough, everyone is entitled to an opinion.
There was an amusing aside to this story of which I only became aware later. It appears that the agency in question made their disquiet at this report known to S&P in no uncertain terms. The question is, did S&P succumb to this pressure and withdraw the analysis? It would not surprise me if they did, given what we now know about the role of the rating agencies in the financial crisis. In any case S&P’s analysis appears to have been remarkably prescient in hindsight and it certainly did not merit the opprobrium which it received.
A final positive note, it would appear that commercial property values have bottomed after a fall of close to 70% and that if we can build some consumer confidence it may be possible to beginning trading again.
Ciprian Popescu on Thursday, April 14, 2011 in Commercial property