Bloomberg reports that Standard & Poor’s has admitted to finding an error in its rating model for constant proportion debt obligations. Unlike that uncovered by the FT at Moody’s, however, the error appears to have had no “erroneous” effect on the S&P triple A ratings of CPDOs.
It’s a very odd admission from S&P, since the occasional occurrence of minor computer errors in rating models is an open secret to most issuers in structured finance. The statement, it would seem, is a fire break: an exercise in clever PR and damage management.
The timing is good. The SEC last night responded to Senator Charles Schumer’s call for fines on the rating agencies, assuring the Senator that investigations were underway. The notable lines (emphasis ours) being:
These examinations are nearly complete. I expect to be able to provide a report to you on our findings in the coming weeks.
Chairman Chris Cox, who penned the SEC letter, meanwhile, has been talking to Bloomberg in the wake of some of the new regulations for rating agencies the regulator simultaneously outlined on Thursday. There’s a lot of interesting stuff from Cox - plenty of allusion on “egregious forms of conduct” at the agencies.
Sullivan and Cromwell - the law firm Moody’s has hired to review its own CPDO rating process - can too, then, be expected to report its findings in the not-too distant future.
