New reports coming in that the president of S&P has stepped down, and that this will be announced before the markets open in the morning:
Deven Sharma is stepping down as president of Standard & Poor’s only weeks after the rating agency issued an unprecedented downgrade of the credit of the US, according to people familiar with the matter. Mr Sharma will remain as an adviser to S&P’s owner, McGraw-Hill, for four months and leave the company at the end of the year, they said. Mr Sharma will be replaced as S&P president by Douglas Peterson, chief operating officer of Citibank, the banking unit of Citigroup, they said. The downgrade of US credit on August 5 led to the worst single day fall in US equity prices since the depths of the financial crisis, and triggered weeks of global market volatility.h/t Brad DeLong
Not surprising after the market has totally rejected the downgrade, with bond prices rising and yields falling. More on this for now: http://www.washingtonpost.com/...
S&P has proven itself as a practical matter almost totally unreliable after absolutely failing to adequately rate mortgage backed securities, and then completely missing the boat by trying to make a political statement of some kind with the US downgrade. Plus its stock tanked after the downgrade.
Replacing Sharma with someone from Citibank? Perhaps this is letting the fox into the henhouse?
Not much on this yet, so a tiny diary, but stay tuned.
Mon Aug 22, 2011 at 10:15 PM PT: Interesting: "McGraw-Hill directors and executives met on Monday with Jana Partners LLC, a hedge fund, and the Ontario Teacher's Pension Fund to hear their arguments that the company should be broken up."
Mon Aug 22, 2011 at 10:25 PM PT: Not sure how this got on the rec list. First time for me. News is scant. Not that the news will tell the real story, LOL.
Mon Aug 22, 2011 at 10:37 PM PT: OK, so now not on the rec list. Fine by me.
Updates this morning: Well, it truly does sound like McGraw Hill is trying to pin the blame for the bone-headed downgrade on Sharma. He was appointed president in 2007, right after S&P booted its former president and started to reverse its stellar ratings on mortgage-backed securities; now they're doing the same to him. Of course, McGraw Hill's stock has gone down 11% since the downgrade, so there's that too.
"Since Sharma came in, he has done little to enhance the credibility or reputation of the ratings agency," Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., said by phone. "Given the recent downgrades, it appears their operational management and ratings modeling have not been meaningfully strengthened."
Read more: http://www.sfgate.com/...
So to recap a few highlights: S&P downgrades Japan's debt in 2002 and the world does not notice. S&P gives stellar ratings to mortgage backed securities and did not see the subprime crisis until August, 2007, despite extreme inflation in housing prices compared to historical trends. That is one of the single leading causes of the dire straits we are now in. S&P makes a $2 trillion error when it downgrades US debt, is called on that error, and goes forward with the downgrade. Warren Buffett and many others say the downgrade has absolutely nothing to do with the ability of the US to pay its debt. US debt prices rise and yields drop, making a mockery of the downgrade. McGraw Hill's stock then drops 11%. Shareholders are advocating structural change (i.e., breaking the company into pieces).
This looks like a company desperate to save its product line, if not itself. Its only product is its credibility. And it really doesn't seem to deserve that credibility given its glaring errors. It tried to flex it muscles and that backfired. So now they fire the president.
Note also that on August 8, a former Moody's executive filed a 78 page "comment" with the SEC alleging that the ratings agencies are "corrupt" and that this "corruption" permeates all levels, because they are paid by the very people they are supposed to rate. Source: http://www.upi.com/...
I think it is high time for a new system.