wikipedia

Standard & Poor's

Criticism

See also: Credit rating agency#Criticism.

Credit rating agencies such as Standard & Poor's have been subject to criticism in the wake of large losses beginning in 2007 in the collateralized debt obligation (CDO) market that occurred despite being assigned top ratings by the CRAs.

Credit ratings of AAA (the highest rating available) were given to large portions of even the riskiest pools of loans. However, on August 6, 2011 US credit rating has fallen to AA+ from AAA, reported The News Tribe ^[6]. Investors, trusting the low risk profile that AAA implies, purchased large amounts of CDOs that later became unsellable. Those that could be sold often took staggering losses. For instance, losses on $340.7 million worth of CDOs issued by Credit Suisse Group added up to about $125 million, despite being rated AAA by Standard & Poor's.^[7]

Despite common perception, Standard & Poor's didn't rate the two major Icelandic banks, Kaupthing and Landsbanki.^{[citation needed]}

Companies pay Standard & Poor's to rate their debt issues. As a result, some critics have contended that Standard & Poor's is beholden to these issuers and that its ratings are not as objective as they should be.

See also: 2010 European sovereign debt crisis.

In April 2009 Standard & Poor's called for "new faces" in the Irish Government, which was seen as interfering in the democratic process. In a subsequent statement they said they were "misunderstood".^[8]

Some critics have pointed out that the S&P and other rating agencies were part of the cause of the global financial crisis of 2008–2009, for example rating Enron higher than it should have been. With the US downgrade some have accused the S&P of causing further damage for their own agenda. Also "A judgment flawed by a $2 trillion error speaks for itself,"^[9] said a spokesman for the United States Department of the Treasury.

Standard & Poor's acknowledged making a USD$2 trillion error in its justification for downgrading the U.S. credit rating,^[10] but stated that it "had no impact on the rating decision".^[11]

Another issue that has concerned commentators is that a Standard & Poor's rating - for example, of the United States government or any other world government - can have, and has had, a distinct effect on a truly global scale. But the decision on these ratings are made by employees of Standard & Poor's who are not elected by the public, and are not accountable for their decision making process. Importantly, there is no appeals process against credit rating decisions made by Standard & Poor's.

[edit]Antitrust Review

In November 2009, ten months after launching an investigation, the European Commission formally charged Standard & Poor's with abusing its position as the sole provider of international securities identification codes for U.S. securities by requiring European financial firms and data vendors to pay licensing fees for their use. "This behavior amounts to unfair pricing," the European Commission said in its statement of objections which lays the groundwork for an adverse finding against S&P. "The (numbers) are indispensable for a number of operations that financial institutions carry out — for instance, reporting to authorities or clearing and settlement — and cannot be substituted.”^[12]

S&P has run the CUSIP Service Bureau, the only ISIN issuer in the United States, on behalf of the American Bankers Association. In its formal statement of objections, the European Commission alleges "that S&P is abusing this monopoly position by enforcing the payment of licence fees for the use of US ISINs by (a) banks and other financial services providers in the EEA and (b) information service providers in the EEA." It claims that comparable agencies elsewhere in the world either do not charge fees at all, or do so on the basis of distribution cost, rather than usage.^[13]