Standard & Poor's Says DOJ Civil Lawsuit Is Unjustified And Without Legal
NEW YORK, Feb. 5, 2013
NEW YORK, Feb. 5, 2013 /PRNewswire-FirstCall/ -- Standard & Poor's Rating
Services (S&P), a subsidiary of The McGraw-Hill Companies, Inc. (NYSE: MHP),
issued the following statement in response to the civil lawsuit filed last
night by the United States Department of Justice (DOJ) and related state
lawsuits regarding S&P ratings in 2007 on certain U.S. collateralized debt
obligations (CDOs) and S&P's rating models for residential mortgage backed
"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. We will vigorously defend S&P against these
unwarranted claims. S&P has always been committed to serving the interests of
investors and all market participants by providing independent opinions on
creditworthiness based on available information. 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.
"Although we deeply regret that these 2007 CDO ratings did not perform as
expected, 20/20 hindsight is no basis to take legal action against the
good-faith opinions of professionals. The fact is that S&P's ratings were
based on the same subprime mortgage data available to the rest of the market –
including U.S. Government officials who in 2007 publicly stated that problems
in the subprime market appeared to be contained. Every CDO cited by the DOJ
also independently received the same rating from another rating agency.
"There was robust internal debate within S&P about how a rapidly deteriorating
housing market might affect the CDOs -- and we applied the collective judgment
of our committee-based system in good faith. The email excerpts cherry picked
by DOJ have been taken out of context, are contradicted by other evidence, and
do not reflect our culture, integrity or how we do business.
"The DOJ omits important context about the emails it cites. For example, the
email that says deals 'could be structured by cows' and be rated by S&P had
nothing to do with RMBS or CDO ratings or any S&P model, and the analyst had
her concerns addressed with the issuer before S&P issued any rating. The DOJ
also cites the fact that S&P personnel discussed proposed rating criteria with
market participants as evidence of wrongdoing although undercertain
recentregulations, S&P is required to do just that. When the full facts are
revealed in court, it will be clear the emails and anecdotes being cited do
not prove any wrongdoing.
"Like many other institutions, S&P has taken to heart the lessons learned from
the financial crisis. In the past five years, we have spent approximately
$400 million to reinforce the integrity, independence and performance of our
ratings. We also brought in new leadership, instituted new governance and
enhanced risk management. We have taken substantive actions to:
oStrengthen independence from issuer influence: We further strengthened
existing analytical independence, enhanced analyst training on issuer
interactions and instituted a rotation program for analysts assigned to
rate bonds from specific issuers of debt.
oImprove our methodologies: We revised the way we rate securities affected
by the financial crisis and introduced more stringent criteria that, among
other changes, set higher requirements to achieve AAA ratings.
oMonitor global credit risks: We established Credit Conditions Committees
around the world to identify and monitor risks to the interconnected
global credit markets and created a coordinated risk perspective across
oEnhance regulatory compliance and analytical quality: We significantly
increased staffing to strengthen analytical quality and ensure compliance
with new government oversight and laws in the U.S., EU and elsewhere."
For more information about S&P's extensive improvements and the current
regulatory framework governing rating agencies, please visit
About Standard & Poor's Ratings Services: Standard & Poor's Ratings Services,
part of The McGraw-Hill Companies (NYSE:MHP), is the world's leading provider
of independent credit risk research and benchmarks. We publish more than a
million credit ratings on debt issued by sovereign, municipal, corporate and
financial sector entities. With over 1,400 credit analysts in 23 countries,
and more than 150 years' experience of assessing credit risk, we offer a
unique combination of global coverage and local insight. Our research and
opinions about relative credit risk provide market participants with
information and independent benchmarks that help to support the growth of
transparent, liquid debt markets worldwide.
Additional information is available at http://www.standardandpoors.com/
Investor Relations: http://www.mcgraw-hill.com/investor_relations
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Release issued: February 5, 2013
Senior Vice President, Marketing & Communications
Vice President, Investor Relations
SOURCE Standard & Poor's Ratings Services
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