We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (17,774)
  • Industry Conferences (3)
  • Industry Job Openings (3)
  • Moore on the Market (207)
  • Negative Media (139)
  • Positive Media (73)
  • Sheryl's Articles (656)
  • Wink's Articles (265)
  • Wink's Inside Story (238)
  • Wink's Press Releases (99)
  • Blog Archives

  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • May 2008
  • February 2008
  • August 2006
  • Poor Standards at S&P, U.S. Alleges

    February 7, 2013 by Editorial Staff

    In a civil suit that reopens the wounds of the 2008 financial crisis and tests the potentially conflicted business model that major U.S. crediting rating agencies use, the Justice Department Tuesday charged Standard & Poor’s Ratings Services with fraud.

    The government—whose own debt was downgraded in S&P in 2011, helping to trigger an equity market correction—alleges that S&P executives knowingly inflated ratings of structured financial products, such as Residential Mortgage Backed Securities (RMBS) and Collateralized Debt Obligations (CDOs), in the years leading up to the crisis.

    According to the complaint, S&P, despite claims of objectivity, inflated ratings to please its investment banking customers and to increase or defend its own revenue and market share.

    As a result, the suit charged, was that “investors, many of them federally insured financial institutions,” lost billions of dollars when the products’ weaknesses became public and their value fell. S&P eventually announced a broad downgrade of subprime RMBS in July 2007.

    On Wednesday, S&P, a unit of The McGraw-Hill Companies, Inc., responded to the suit with a statement:

    “The DOJ and some states have filed meritless civil lawsuits against S&P challenging some of our 2007 CDO ratings and the underlying RMBS models.  Claims that we deliberately kept ratings high when we knew they should be lower are simply not true.   … At all times, our ratings reflected our current best judgments about RMBS and the CDOs in question.  Unfortunately, S&P, like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected.”

    The case may hinge on the content and context of certain internal S&P e-mails sent during 2007, when executives evidently discussed the pressure to mollify their primary customers—the investment banks that underwrote the financial instruments in question—by using “business-friendly” ratings models.

    In one internal email quoted in the suit, an executive said:

    I do not believe that market share is our only objective. However, we cannot ignore the real risk of losing transaction revenue… The balance between market share and analytical integrity is complex, as one needs to consider ‘long-term’ and ‘short-term’ market share. In the short term it may be more beneficial to use modeling assumptions that are more favorable to transactions that are in the pipeline. In the long-term it may be more beneficial to have a more robust model that can be adapted to new transactions (such as long/short, etc.) so that we don’t lose new opportunities to our competitors.”

    Another email that reflected internal debate said:

    “The only way I can see to move this forward is to approach our clients and ask them for pools and levels, but this looks too much to me as if we are publicly backing into a set of levels driven by our clients.”

    The suit also points to the emergence of gallows humor at S&P when the true value of the RMBS and CDO investments became generally known and a crash began to appear likely:

    “On July 13, 2007 an S&P CDO analyst emailed employees at two banks that issued CDOs a cartoon that depicted asset-backed CDOs as a game of ‘Jenga,’ where the object is to remove pieces from a structure, creating a more and more unstable structure, until the entire thing collapses.”

    The government will have to prove that the internal emails at S&P amount to smoking-gun evidence of fraud. S&P has protested that unflattering emails were “cherry-picked” for inclusion in the suit by the Justice Department.

    At the least, however, the suit is likely to shed new light on the business model that major ratings agencies use. The agencies earn huge fees from their investment banking customers, who are able to shop among the agencies for the most favorable ratings. That potentially creates pressure for grade-inflation. The emails quoted in the lawsuit suggest that analysts at S&P may have been less insulated from commercial pressures than S&P publicly claimed.

    The suit echoes the theme of some of the lawsuits that followed the dot-com crash of 2000, when analysts at major investment banks were accused of purposely inflating the ratings of certain technology stocks and encouraging investors to buy securities that the analysts privately disparaged.

    Originally Posted at Retirement Income Journal on February 7, 2013 by Editorial Staff.

    Categories: Industry Articles
    currency