Fitch Rating Fee Increases Anger Users

Over recent months, Fitch has met with some consumers to discuss fee increases for its data, and has proposed price increases for its research of about five percent. However, the vendor is also proposing fee increases of more than 100 percent for some users of its global credit ratings, which cover fixed income issuers and securities, structured finance transactions, and public finance notes. 

“Fitch Ratings told us that it was increasing its prices to bring them on par with the industry standard. The research came in at a more reasonable at five percent, as we would expect, but with the ratings, they started out at 100 percent,” says a global head of market data at a UK bank. 

End users also say that Fitch has not been forthcoming in providing comparable figures for what the other ratings agencies charge, as none of the main providers make their fees publicly available, while firms may not subscribe to the same datasets from each agency, making an “apples-to-apples” comparison impossible. However, staff changes between the ratings agencies mean that each firm has a “good” idea of what the others are charging. 

According to the market data manager, Fitch eventually renegotiated the price down to a point that was more reflective of its value. “I do hear what they are saying, as banks have all new regulation and capital controls under Basel II, which puts more stress on relying on those external providers’ data, but to start off at 100 percent is ludicrous,” he says.

Key to the new fees is a pricing model that aligns different forms of data usage to new license types, which Fitch determines by having clients complete a document declaring how they use its data. Users say this document has become more granular, with Fitch paying more attention to in which departments within a firm and which jurisdictions its data is used. 

As the smallest of the big three ratings providers, alongside S&P Ratings and Moody’s, Fitch is now trying to catch up with its peers in terms of pricing, says an executive at UK-based data user group Ipug. “S&P and Moody’s have been creating licenses for years, and now Fitch is trying to catch up…. Before, they had no idea how their data was being used,” the executive says. 

The Fitch ratings data is typically used on a daily basis by firms to facilitate smarter analysis around capital adequacy under Basel II, which requires firms to improve the quality of their capital adequacy calculations. By rating bonds more accurately, firms can reduce the amount of capital they need to set aside, freeing up money for trading and investment. 

“More commonly, we really need three ratings to rate a bond, but we are also using them more in benchmarking and comparisons,” says a market data manager at a European investment management firm. “However, in this case, there seems to be a gap between value and cost,” because Fitch has a smaller coverage than the other agencies, the data manager says.

Indeed, the data head at the UK bank says the fee increases are not commensurate with the value of the ratings, and as such, the firm is now looking for ways to reduce its consumption of Fitch ratings, though he says this process “could take months” as the ratings data is plumbed into the bank’s systems, data warehouses and applications.

Another market data manager at a US investment manager says Fitch proposed an increase of three times its existing license fee, and as a result, is now “targeted for elimination” at the firm. 

A Fitch spokesperson says the vendor does not comment on client relationships.