Capture The Moment: FirstKnow.It

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Technology  |  Our Method  |  2008 Crisis
www.FirstKnow.It: Ideas
Credit risk management means keeping up with the changes in your counterparties' status as they happen.

Old information means poor decisions and unmanaged risks.

This is a difficult problem even for the major credit rating agencies. Despite large teams of analysts they find it difficult to keep up with events. The bankruptcy of Lehman Brothers, the largest in US corporate history, demonstrates the point. Lehman failed on 15th September 2008. Click here to see the FirstKnow.It analysis of Lehman. This shows that from 22nd May 2008 the FirstKnow.It model was calculating the firm to be theoretically bankrupt, almost four months before its eventual collapse. At the time of its bankruptcy, the major rating agencies, Moody's and S&P, were assigning the firm a rating of A2 and A. This pattern was repeated throughout the 2008 financial crisis, with the FirstKnow.It model successfully predicting the failure or distressed acquisition weeks or months beforehand of 67 firms from its coverage of 700 US financial entities at the time of the crisis.

The success during the 2008 financial crisis followed the earlier successful analysis of Worldcom, to that date the largest in US corporate history. In early February 2002 the FirstKnow.It model was assigning a 60% one-year default probability to the company, equivalent to a C- rating. At this time, the company was rated A3/BBB+ by Moody's and S&P. On 4th April 2002, Hoenig & Co. posted on its Bloomberg pages an article by FirstKnow.It, titled "www.FirstKnow.It: Worldcom's credit is heavily overated" highlighting the 60% default probability. Click here to see the original article. This article led to Dr Andrew Bagley, Senior Technical Advisor to FirstKnow.It appearing on CNN Financial News, representing FirstKnow.It as the only credit agency to provide timely warning of the credit risks of Worldcom.

FirstKnow.It uses current and historic share price information to derive expected loss, default probability, credit ratings and the "Equivalent Equity Position" (EEP) of the credit risk. It is widely accepted that share prices give a good real-time assessment of a company's economic prospects. As new information becomes available it is rapidly reflected in the company's share price and FirstKnow.It recalculates its ratings and Equivalent Equity Position (EEP) every day to incorporate the latest share data. Click here for further discussion of FirstKnow.It's methodology.