Posts tagged 'Standard and Poor's'

Ratings bias slap-back smackdown watch

So, after we wrote about a paper by two economists at the University of Heidelberg that attempted to discern an empirical basis for accusations of bias in rating agency opinions, Standard & Poor’s fought back.

The rater, you will recall, did not like the suggestion that its rating on the US should have been a notch lower if it was to be consistent, suggesting a bias towards its home country. Andreas Fuchs and Kai Gehring’s algorithm did not pick up the subtleties of the ratings process, you see. Read more

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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Home is where the heart is, sovereign rating edition

To the many sticks used to bash the credit rating agencies for their role in the (near) downfall of the financial system, we can now add a new one: home bias.

The complaint comes with academic credentials from two economists at the University of Heidelberg, Andreas Fuchs and Kai Gehring, who have looked at the ratings produced by nine agencies in six countries for 143 sovereign issuers.

It turns out that economic and cultural ties produce a more favourable view of the homeland and, guess what, it has become more pronounced since the financial crisis. Read more

ESMA: ‘Get the raters!’

You might expect an EU-sponsored investigation into the sovereign ratings process as practiced by Moody’s, S&P and Fitch to be coloured, politically. But that would be casting aspersions on the upright professionals running the European Securities and Markets Authority.

Emoticon Read more

Hey look, even wealthy countries can suffer creditworthiness-threatening financial crises

Moody’s announced on Tuesday that it’s reviewing its sovereign credit ratings methodology, and seeking comment from industry participants.

The review comes probably not a moment too soon — and we are not just talking about the French getting very cranky. Bloomberg reckons Moody’s sovereign ratings are unpopular, even by the low standards of sovereign ratings popularity: Read more

S&P downgrades Spain

So Standard & Poor’s has cut Spain by two notches, to BBB- from BBB+, just one notch above junk level. As the FT said:

The rating agency’s move came after markets had closed in New York, but the euro still fell slightly on the news to trade 0.1 per cent lower at $1.2870.

S&P’s report is in here. Read more

S&P ratings warning to top euro nations

Standard and Poor’s has warned Germany and the five other triple A members of the eurozone that they risk having their top-notch ratings downgraded as a result of deepening economic and political turmoil in the single currency bloc, the FT reports. The US ratings agency is poised to announce later on Monday that it is putting Germany, France, the Netherlands, Austria, Finland, and Luxembourg on “creditwatch negative”, meaning there is a one-in-two chance of a downgrade within 90 days. It warned all six governments that their ratings could be lowered to AA+ if the creditwatch review failed to convince its experts. Markets have been braced for a potential downgrade of France but few expected Germany’s top rating to be called into question. With regard to Germany, S&P said it was worried about “the potential impact (…) of what we view as deepening political, financial, and monetary problems with the European economic and monetary union.”

Standard & Poor’s speak the truth on Europe’s stress tests

Standard & Poor’s has dug into the European banking stress tests before.

But its latest review — out on Wednesday — really sums up the matter. It’s always been politically impossible for the European Banking Authority to assume real (restructuring) losses in the exercise. Read more

S&P goes negative on the United States of AAA/A-1+merica

Fresh from Standard & Poor’s on Monday — a bit of a headache for the United States:

We have affirmed our ‘AAA/A-1+’ sovereign credit rating on the United States of America. Read more

DeKalb County, Georgia on municipal minds

On Friday S&P stressed its March 29 five-notch downgrade of the GO and appropriation-backed debts of DeKalb County, Georgia was “not the canary in the coal mine, but more the anomaly”.

But in a municipal market report also out on Friday, Citi is more sceptical about the nature of the proverbial bird and what it means for other US local governments and the credit outlook for some munis. Read more

New Jersey rating is cut by Standard & Poor’s

S&P on Wednesday cut New Jersey’s credit rating on risks tied to underfunded pensions, while another troubled state, Illinois, was attempting to sell about $4bn of bonds to investors from Hong Kong to New York to meet its annual pension bill, the FT says. The New Jersey downgrade will increase the interest rates that the state must pay when it borrows money, the New York Times adds. Meanwhile FT Alphaville reports on Wednesday’s Congressional hearings into municipal debt.

A $30bn re-Remic rating ‘error’ from S&P


NEW YORK (Standard & Poor’s) Dec. 15, 2010–Standard & Poor’s Ratings Services today placed its ratings on 1,196 classes from 129 U.S. residential mortgage-backed securities resecuritized real estate mortgage investment conduit (RMBS re-REMIC) transactions issued in 2002-2010 on CreditWatch with negative implications. Read more

S&P says new rules will hit big bank profits

The new regime of financial regulation will hit annual profits at the US’s eight biggest banks by between $19.5bn and $22bn, according to one of the first assessments of the new law. Standard & Poor’s analysts say there will be a noticeable loss of income as a result of restrictions on proprietary trading, credit card fees and derivatives activity at Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, PNC Financial, US Bancorp and Wells Fargo, the FT reports. “We think that these banks will eventually be able to offset these deficits by making smaller additions to loan-loss reserves and raising prices for some products and services,” the report said. “A return to more typical banking conditions would, in our view, mitigate most, or even all, of the financial costs of Dodd-Frank for these banks.”

Kill the old, AAA-rated edition

Imagine a financial system without a single AAA-rated sovereign:

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S&P to Dagong (and Moody’s): It’s on

Standard & Poor’s chairman Harold McGraw has responded to criticism of his ratings agency by the chair of rival Dagong Global Credit, which is based in China. McGraw said that Dagong would have to “stand on its own” and be more transparent. Read more

Decline and fall (of ratings lift)

Barbarians at the gate? Nearly.

Standard & Poors on Thursday placed the City of Rome’s A+ credit rating on outlook negative, as it assessed the impact of fresh Italian austerity measures. Read more

The wafting risk of floating rate CMBS

Presenting interest rate risk for commercial real estate.

Sometime before the start of the new millennium real estate players hit upon a novel idea; commercial mortgage-backed securities (CMBS) collateralised by floating rate loans. The idea was that floating rate CMBS would give borrowers financial flexibility in the midst of interest rate uncertainty – in effect, allowing them to refinance their loans at a later (cheaper) date. Read more

Covered bond consequences for S&P

Here’s a good illustration of the tightrope-walk often faced by the ratings agencies.

Having opted to stick with its proposed revised ratings methodology for covered bonds, first announced in February last year, S&P is now experiencing the consequences of having tougher ratings criteria. Read more

S&P downgrades Greece

The rating agency has just cut Greece’s sovereign rating (Hellenic Republic) by one notch: from A to A-:

Following a relatively modest improvement in the general government deficit since 2004, Greek public finances are, in our opinion, entering the economic downturn with high deficits and gross debt estimated at around 3.5% of GDP and 94.1% of GDP in 2008, respectively. We believe that repeated failures to stick to budgetary plans and a longstanding over-reliance on the revenue side, aggravated by regular deficit-increasing one-offs and expenditure slippages, have led to structural weaknesses in fiscal management.

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Rating cows

On Wednesday, the House Oversight Committee of the US Congress held a hearing on the rating agencies. And it released some explosive material – the implications of which don’t yet seem to have quite sunk in. The evidence presented is extremely damning.

There are exchanges like this, via instant message: Read more

Rating agencies ‘broke bond of trust’

Credit ratings agencies were fully aware that their conflicts of interest were giving unduly high scores to risky assets, threatening the stability of the entire financial system, US lawmakers said yesterday. Employees at Moody’s and S&P privately questioned the value of some mortgage-backed securities that were given creditworthy ratings, according to e-mails released by a US panel, Bloomberg said. “Let’s hope we are all wealthy and retired by the time this house of cards falters,” one email read.

S&P, credit pontificator

Credit rating agency Standard & Poor’s used a report today on fear in the markets to do a bit of navel gazing.

To wit: Read more

Downgrading the USA

A sovereign’s future debt path can not only be determined by its existing stock of debt, its future budget balances, real interest rates, and exchange rates, it can also be determined by discrete, one-off events that add to the government’s debt burden. Such events can stem from financial difficulty at the state or local government level (which, in aggregate, draw from the same base of taxpayers as the federal government), at the level of public enterprises, or from the financial sector.

In April this year, S&P issued a report which spooked markets, titled: “For the U.S. ‘AAA’ Rating, Government-sponsored enterprises pose greater fiscal risks than Brokers.” Read more

On AIG: 72 hours to live

Actually, 48 hours – 72 hours, in the event of a credit rating downgrade.

So reports the New York Times, citing an individual close to the firm. The reason for the dramatic warning: ratings downgrades would spell huge collateral calls from counterparties on AIG’s CDS. The relevant detail is in AIG’s 10Q from June 30: Read more

S&P to bring transparency to buy-outs

Private equity groups will soon have more financial information disclosed publicly about the performance of the European companies they invest in under changes to Standard & Poor’s debt ratings. From December, S&P will give so-called public ratings for buy-outs with debt of more than €1bn in a move some investors and bankers hope will improve confidence and liquidity in the leveraged loan market.

CDO watch: ratings shopping

Several CDOs are going into liquidation on Tuesday – a sign, perhaps, that senior noteholders are losing their nerve amid more signs of deterioration in MBS fundamentals, as reported by the rating agencies this week.

But something slightly more interesting is happening with a CDO called Palladium II. As filed today with the Irish Stock Exchange: Read more

Moody’s on ratings watch negative

After close of markets New York time, Standard & Poor’s put Moody’s short term debt on credit watch negative:

NEW YORK (Standard & Poor’s) May 22, 2008–Standard & Poor’s Ratings Services today placed its ‘A-1’ commercial paper rating for Moody’s Corp. on CreditWatch with negative implications.

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The rating game

Take a deep breath now. We’re offering up a 5,000 word analysis – from this weekend’s New York Times Magazine. It’s not a typical leisurely-read-on-a-Sunday-in-April affair, admittedly, tackling the tricky relationship between Wall Street’s mortgage machine and the credit rating agencies over the recent years.

But neither is it vanity publishing, US-press style. Read more

Panic over! (almost) – or so says S&P

Put the pistol down. Move away from the ledge. We can talk this through. The worst is all but over. Witness the title of the latest tome from Standard & Poor’s:

More Subprime Write-Downs To Come, But The End Is Now In Sight For Large Financial Institutions

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Brace yourselves: S&P adjusts risk models

Late last night, rating agency Standard & Poor’s did some quiet housekeeping.

In a late press release, S&P announced it was adjusting its cumulative loss measure on 2006 subprime collateral to 19 per cent – up from 14 per cent: Read more