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Bank analyst Whitney to start credit-rating firm

NEW YORK (Reuters) - Wall Street bank analyst Meredith Whitney, who shot to fame correctly predicting the industry's carnage in 2007, is regearing her nearly 2-year-old research company into a credit-rating agency.

Meredith Whitney Advisory Group said on Friday that the firm plans to compete against long-time credit-rating heavyweights -- Standard & Poor's, Moody's Investors Service and Fitch Ratings -- while continuing to do research.

In early 2009, Whitney left her job as banking analyst at Oppenheimer & Co to set up her own equity analytics firm, and less than two years since its inception began dipping into the credit market, writing bearish notes on municipal bonds.

Now the company is applying to the Securities and Exchange Commission to get licensed as an agency, which would follow the traditional business model of charging debt issuers for ratings and would evaluate global structured debt, corporate bonds and U.S. munis, Whitney told the Financial Times.

Whitney is the latest in a series of outsiders to try to break into the credit-rating field after the traditional agencies were widely criticized as playing a major role in creating the financial crisis by routinely assigning top ratings to many of the risky mortgage securities that ultimately collapsed.

But she and other interlopers may face an uphill battle, especially as Moody's <MCO.N> and McGraw-Hill Cos Inc's <MHP.N> S&P remain entrenched despite efforts to curb their role in the Dodd Frank financial reform bill.

"The headwind she's going to face is investors may really find her appealing, but issuers may not," said Dick Bove, bank analyst with Rochdale Securities.

"What fascinates me is someone's going to fund what she's doing," he said. "We're talking about a massive undertaking."

After Whitney set up her own camp, the high profile analyst -- a fixture on business news channel CNBC and elsewhere -- faced criticism that her calls' prescience was slipping.

Now Whitney must build a new business on the debt side and attract credit issuers after years of establishing herself as an equity analyst -- a tough goal to achieve.

"I've not seen it done," said James Nadler, president and chief operating officer of Kroll Bond Ratings, a credit-rating agency that another high-profile Wall Street figure, Jules Kroll, is attempting to set up.

Kroll, known for his corporate intelligence work, had set off with the same goal as Whitney: to challenge the incumbent agencies.

Instead of applying for the "nationally recognized statistical rating organization" license as Whitney is doing, Kroll's firm took a swifter tack and acquired an already established NRSRO subscriber-based ratings agency, Lace.

But it has yet to establish its presence on the arena and start issuing ratings. Kroll had already delayed beginning to rate residential mortgage and asset-backed securities, and Nadler said the goal is now to start issuing ratings in the first quarter of 2011.

"It's a process, you've got to develop criteria, you've got to build your team, you've got to go out and speak to investors," Nadler said.

And then there's the question of financing the overhaul of a research company to gear it toward credit rating.

"It has gotten more costly and keeps getting more costly," Nadler said of starting a credit-rating agency.

Another research-focused firm that edged into the market this year by acquiring an existing credit-rating agency was Morningstar Inc <MORN.O>.

In August, Morningstar, best known for its mutual-fund research, bought Realpoint LLC, which -- like Lace -- relies on investors instead of issuers to pay for evaluations and looks to expand its reach into structured finance.

S&P spokesman Edward Sweeney and Fitch spokesman Daniel Noonan both said they viewed increased competition as a positive thing.

A Moody's representative and Whitney could not be reached for comment on Friday.

(Reporting by Alina Selyukh; Editing by Gary Hill)