Standard & Poor’s is replacing its chief credit officer, Mark Adelson, as the world’s largest ratings company winds down a year in which its grades of governments have faced growing scrutiny.
Adelson, 51, who oversaw an overhaul of S&P’s methodologies that was designed to address their failures during the collapse of the mortgage-bond market, will become a “senior research fellow,” the New York-based unit of McGraw-Hill Cos. said yesterday in a statement. Also, David Jacob, global head of structured finance, will depart at the end of the month.
The changes come three months after Douglas Peterson left Citigroup Inc. to become S&P’s president, following its decision to strip the U.S. of its top AAA ranking. This week, the firm warned it may downgrade Germany, France and 13 other European countries. Even as S&P’s moves roil credit markets, McGraw-Hill is planning to separate its financial businesses from its textbook publishing unit under pressure from hedge fund Jana Partners LLC.
“There are a lot of changes going on at McGraw-Hill broadly,” Peter Appert, an analyst who follows the company at Piper Jaffray & Co. in San Francisco, said in a telephone interview. Peterson has been discussing removing layers of management, he said.
Ian Thompson, who was previously responsible for the Asia-Pacific region, will replace Adelson, S&P said in the statement. Peterson, the former chief operating officer of Citibank NA, replaced Deven Sharma, who had led the unit since 2007.
Jacob and Adelson joined S&P in 2008 from Adelson & Jacob Consulting, where they worked together. Jacob took over a structured-finance business that was blamed by congressional investigators for contributing to the worst financial crisis since the Great Depression by assigning top grades to risky real-estate bonds.
Under Adelson, S&P revised the way it graded governments, banks and bonds backed by assets such as mortgages. The new criteria for structured finance were designed to be “tougher,” Adelson said in an undated video on S&P’s website. Any bonds carrying AAA ratings should be able to withstand stress similar to the Great Depression, Adelson wrote in a paper in 2009.
S&P downgraded the U.S. one step to AA+ on Aug. 5, saying that gridlock in Washington and the rising national debt were making it riskier to invest in government bonds. The cut was questioned by President Barack Obama, who said in a speech on Aug. 8 that the ratings company was basing its judgment on politics, not on the government’s ability to pay its debts.
On Dec. 5, S&P warned that it may cut 15 euro nations as policy makers prepared to meet in Brussels to end a crisis that led to bailouts of Greece, Ireland and Portugal, and now threatens to engulf Italy.
European Central Bank governing council member Christian Noyer lambasted S&P.
“They changed their methodology and it’s now more linked to political factors and less to fundamentals,” Noyer said on Dec. 5 at a conference in Paris. “The rating agencies fueled the crisis in 2008 and we can question whether they’re not doing the same thing in the current crisis.”
Moritz Kraemer, S&P’s head of European sovereign ratings, denied that the company was trying to influence politics.
In July, S&P withdrew grades it had assigned to a $1.5 billion offering of bonds backed by commercial mortgages from Goldman Sachs Group Inc. and Citigroup Inc., forcing the banks to scuttle the deal after it was placed with investors.
“The manner in which S&P took its action has severely eroded investor and issuer confidence in its ratings,” Morgan Stanley analysts led by Richard Parkus in New York wrote in a note on July 28.
Last month, after revising its bank criteria, S&P lowered its ratings of Goldman Sachs Group Inc., Bank of America Corp. and UBS AG.
Prior to consulting, Adelson was head of structured finance research at Nomura Securities International, according to a statement announcing his hiring.
S&P also said that it was looking to hire a new chief economist and chief risk officer. McGraw-Hill said on Dec. 7 it would eliminate 550 jobs at its education unit.