Posts tagged 'Rating Agencies'

Sovereign rating bias, a clanging gauntlet lands [Update]

We’ve featured one study that claimed to find bias in sovereign ratings, written in the measured tones of academia, which was enough to set off some tit-for-tatting between S&P and the authors.

Well the members of UniCredit’s economics team have decided to enter the debate, and they have no intention of holding back on “the damaging bias in sovereign ratings”. The low down to follow, but lets skip to the conclusion:

In light of our findings, we suggest that credit rating agencies should be stripped of their regulatory powers and these transferred to an international body. Failing that, the ratings agencies should be forced to substantially increase transparency, including publishing a separate breakdown of the objective and subjective components of ratings, the minutes of the rating committees, and the voting records.

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Home Bias? Not us, says S&P

Standard & Poor’s have penned a response to the academic paper we recently featured and which suggested that, were the US-based rating agency to be consistent, it should have cut the world’s superpower down another notch in 2011.

Click to read the whole letter from S&P in the piqued interior voice of your choosing:

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Debt ceilings and downgrades: who cares?

After the two sides fired shots across each others’ bows — the Republicans through Politico and Obama via satellite — Fitch released a threatening note this morning:

Fitch Ratings’ expectation is that Congress will raise the debt ceiling and that the risk of a U.S. sovereign default remains extremely low. Nonetheless, and in line with our previous guidance, failure to raise the debt ceiling in a timely manner will prompt a formal review of the U.S. sovereign ratings. … Read more

AAA ratings, alternative universes, and hindsight

Yes, it’s very bad for S&P. Australia’s federal court found that the ratings agency had misled local councils through assigning AAA credit ratings to CPDOs which it had failed to check properly.

But since this could well be a landmark case for credit ratings as causes of financial harm… Read more

Moody’s: EU outlook moved to negative

The rationale here is pretty rational.  From the rating agency’s statement on Tuesday…

The negative outlook on the EU’s long-term ratings reflects the negative outlook on the Aaa ratings of the member states with large contributions to the EU budget: Germany, France, the UK and the Netherlands, which together account for around 45% of the EU’s budget revenue. The creditworthiness of these member states is highly correlated, as they are all exposed, albeit to varying degrees, to the euro area debt crisis. Read more

Fattening tails in euroland structured finance

A request for comment by Moody’s — on how to rate asset-backed securities experiencing “rapid country credit deterioration”:

(Click to enlarge) Read more

The (sovereign) mystery box

Cookie Monster: It a horse! It a cow! It a ball! It a pogo stick! It a rump roast! It a moose!

(Reuters) – The European Central Bank is discussing a medium-term plan to scrap rating rules on euro zone sovereign bonds and instead set their value when used as collateral in lending operations on its own internal assessment, central bank sources said… Read more

No rating outlooks please, we’re MEPs

OK. Before reading on… a reminder of how the sausage gets made in EU legislation. Something voted on by Members of European Parliament, or MEPs, still must go to the Council for approval and, quite often, amendment.

With that caveat, some sausage on sovereign credit rating regulation: Read more

Monte Carlo-simulated sovereign credit

And it’s all free and open source.

Presenting the Public Sector Credit Framework — a quantitative alternative to sovereign and muni credit ratings produced by the agencies. It’s just launched: Read more

SEC charges Egan-Jones

Washington, D.C., April 24, 2012 — The Securities and Exchange Commission today announced charges against Egan-Jones Ratings Company (EJR) and its owner and president Sean Egan for material misrepresentations and omissions in the company’s July 2008 application to register as a Nationally Recognized Statistical Rating Organization (NRSRO) for issuers of asset-backed securities (ABS) and government securities. EJR and Egan also are charged with material misrepresentations in other submissions furnished to the SEC and violations of record-keeping and conflict-of-interest provisions governing NRSROs.

Full SEC Order here. The regulator has alleged that Egan-Jones made a material misrepresentation in claiming to have rated government debt and ABS — and that it hadn’t — when making its NRSRO application, and that conflicts of interest were present: Read more

Rating the raters — save the date

Tuesday, January 24, 9am, Brussels…

Blurb: Read more

Rate as I say, not as I do

From the European Commission in November:

2. More transparent and more frequent sovereign debt ratings. Read more

Congress scrutinises ratings agencies over MF Global

Congressional investigators are stepping up their inquiry into how closely ratings agencies looked into the European sovereign debt bet that sank MF Global, the WSJ reports, citing people familiar with the matter. Randy Neugebauer, chairman of the House Financial Services subcommittee on oversight and investigations, sent letters to Moody’s chief executive Raymond McDaniel and Standard & Poor’s president Douglas Peterson seeking detailed information about the firms’ procedures for determining MF Global’s creditworthiness, the report says, and both had been asked to testify in a new round of hearings on the firm’s collapse in late January or early February.  The letter to Mr McDaniel asks when Moody’s “first became aware of MF Global’s exposure to European sovereign debt” and whether Moody’s had reason “to question whether MF Global was subject to risk associated with such transactions”, it says, and the letter to Mr Peterson asks whether S&P took into consideration MF Global’s January 2011 decision to replace its chief risk officer.

BHL sur… the rating agencies

Some are phlegmatic about a downgrade of France’s AAA credit rating:

La possible perte par la France de son triple A vous inquiète-t-elle? Read more

Moody’s downgrades a trio of French banks

Showing a flair for irony we would not expect from a US-based company, Moody’s has made Europe’s morning complete by downgrading the three big French banks.

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Move towards US banks ending reliance on ratings agencies

Two US regulators are proposing big banks stop relying on credit ratings to evaluate the risk of their assets, says the WSJ.  The proposal from the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency relates to directives in the Dodd-Frank act. While the proposal only replaces the use of credit ratings in a set of rules for a number of large banks, the newspaper says regulators will likely use a similar framework in forthcoming rules that will apply to all banks, including smaller ones.

Eurozone finance ministers meet as sovereign fears hit rally

An Asian-led rally is already running out of steam as an air of caution descends on markets, with attention once again squarely focused on sovereign debt worries, reports the FT. The FTSE Eurofirst was down 0.7 per cent in early trading Tuesday morning, ignoring a 1.6 per cent rally in the FTSE Asia-Pacific index overnight. The focus remains on Europe after Moody’s said it was considering a downgrade of the subordinated debt of 87 European banks – primarily in Spain, Italy, Austria and France. Furthermore, talk that France’s sovereign debt rating could be put on “negative” outlook by Standard & Poor’s is also hurting sentiment. But a move overnight by Fitch, the ratings agency, to put the US triple-A credit rating on “negative” watch has reminded traders that the eurozone is not the only part of the world where governments are heavily indebted and facing low growth. In Europe, eurozone finance ministers are scheduled to meet in order to agree details on an expanded European Financial Stability Fund (EFSF). This comes amid renewed pressure from US President Barack Obama for leaders in Europe to prevent a breakup of the currency, reports Bloomberg. Poland’s Foreign Minister Radoslaw Sikorski also made an passionate plea for Germany to take more leadership in resolving the crisis, Reuters reports.

All your European bank sub debt in one handy downgrade review

Ratings agencies delivering disturbing news that we already kinda knew, part 328:

London, 29 November 2011 — Moody’s Investors Service has today placed on review for downgrade all subordinated, junior subordinated and Tier 3 debt ratings of banks in those European countries where the subordinated debt still incorporates some ratings uplift from Moody’s assumptions of government support, with the potential complete removal of government support in these ratings. The review will affect 87 banks in 15 countries in Europe with average potential downgrades of subordinated debt by two notches and junior subordinated debt and Tier 3 debt by one notch. The greatest number of ratings to be reviewed are in Spain, Italy, Austria and France. Read more

A pox on all your AAA houses

No doubt it’s just a coincidence that S&P published new recession scenarios for the eurozone on the same day Brussels began talking about banning sovereign ratings on countries undergoing bail-outs…

However, critically for the EFSF, France would suffer a downgrade no matter what in a double-dip recession, the ratings agency says. Read more

Sovereign ratings correlation like it’s the 1990s

It’s not often you see the world’s third-largest issuer of sovereign debt downgraded by no fewer than three notches overnight.

Nor is it very often that you see ratings agencies cut Italy and Spain, and put Belgium on warning, also over a single night. Read more

McGraw-Hill plans education spin-off, clings to S&P

FT Alphaville broke the news on Monday night that Deven Sharma is to step down as president of S&P, following a review of McGraw-Hill’s strategic operations and only three weeks after its historic downgrade of the US sovereign credit rating.

We spoke with people familiar with the thinking of the company on Tuesday and asked them what this meant for the future of the rating agency and the rest of the McGraw-Hill empire, which is coming under increasing pressure to boost shareholder value from activist fund investors. Read more

US inquiry eyes S&P ratings of mortgages

The Justice Department is investigating whether credit rating agency Standard & Poor’s improperly rated dozens of mortgage securities in the years leading up to the financial crisis, the New York Times reports. According to the paper’s sources, the Justice Department has been asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P business managers. If the government finds enough evidence to support such a case, which is likely to be a civil case, it could undercut S&P’s longstanding claim that its analysts act independently from business concerns, the paper says. As yet, it is unclear if the investigation will involve the other two ratings agencies, Moody’s and Fitch, or only S&P. The agencies’ business practices and models have been highly criticized from many corners, including in Congressional hearings and reports that have raised questions about whether independent analysis was corrupted by the drive for profits.

S&P says default unlikely but downgrade possible

Standard & Poor’s president told a US House of Representatives panel that the country is unlikely to default on its debt obligations but its credit rating could still be lowered if it doesn’t come up with an adequate plan to address spending and its soaring budget deficit, the NYT reports. Deven Sharma said news coverage had “misquoted” a July 14 S&P report as saying that at least $4,000bn in spending cuts would need to be achieved over 10 years to maintain the country’s triple-A rating. He said the figure was “within the threshold” of what S&P thinks is necessary, but declined to specify an amount; saying that “some of the plans” being considered would be adequate.

US downgrade threat looms behind debt limit

The Obama administration is increasingly concerned that it can only win a deal to raise the debt ceiling at the expense of losing the United States’ AAA rating, Politico reports. S&P reiterated on Wednesday its view that a short-term deficit reduction deal is negative for the rating, Reuters says, compounding its July 14 move to put the US on negative credit watch. In contrast, Moody’s and S&P have affirmed AAA ratings for corporate issuers including ExxonMobil and Microsoft even as they have turned negative on the sovereign credit, reports the FT. Growing calls for the Fed to buy Treasuries in the event of a downgrade sell-off are meanwhile likely to fall on deaf ears, the Washington Post reports.

Rating (ir)relevance and downgrade speculation

Then…

“We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.” Read more

Ford’s shapeshifting asset-backed securities

Citigroup published a note on Thursday lauding the asset-backed securities (ABS) market for “continuing to exercise leadership in capital market solutions.”

One for Private Eye but please bear with us as Citi goes on to discuss the fascinating and appropriately named Fuel (Ford Upgrade Exchange Linked) notes issued by Ford Motor Credit. Read more

The price of distressed defeased treasuries

When it comes to what may or may not happen should the US be downgraded, it’s all about the collateral.

(And perhaps the GSEs.) Read more

Hacking the messenger

Not actually a hack — a URL script trick.

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Europe lashes out over downgrades

Senior European officials lashed out at Moody’s on Wednesday, questioning the timing of the debt rating agency’s downgrade of Portuguese bonds this week and threatening new regulatory action against all three major rating agencies, reports the FT. The high-profile criticism follows long-simmering European complaints about Moody’s and its two competitors, Standard & Poor’s and Fitch, centring on whether they have improperly attempted to influence policy-making in the ongoing debt crisis.

Ratings logic at the European Commission — in selective default

What with the ECB on Greece, and Moody’s on Portugal, it’s been a week to remember the ancient adage (ahem) that “ratings don’t kill sovereigns, ratings users do.”

Predictably, the European Commission didn’t care on Wednesday: Read more