S&P Selective Disclosure Prompts Scrutiny
By Jody Shenn - Sep 22, 2011 12:00 AM ET .
S&P, Moody’s Investors Service , and Fitch Ratings are the largest of 10 firms approved by the U.S. Securities and Exchange Commission to assign credit rankings used by investors and regulators to evaluate securities.
As Standard & Poor’s considered the first ratings downgrade of the world’s biggest economy in late July, some of the largest bond investors held undisclosed meetings with the firm that would ultimately strip the U.S. of its AAA grade.
BlackRock Inc. (BLK), Western Asset Management, and TCW Group Inc., which oversee almost $4 trillion, were visited by S&P, after the company had said publicly that there was more than a 50 percent chance of a cut, said people familiar with the conversations who declined to be identified because they were private. Ed Sweeney, a spokesman for S&P, says such talks are an attempt to make the ratings process more transparent.
While these meetings can be legal, they underscore the influence granted to the ratings companies during the Great Depression to say what’s safe and what’s risky in the $35 trillion U.S. fixed income market. The sessions provided some investors more access than others at a time when confidence in the global financial system has yet to recover from the subprime crisis that the firms helped create.
“This isn’t an ordinary commercial enterprise we’re talking about,” said Robert Hillman, a professor at the University of California, Davis, School of Law and the institution’s fair business practices and investor advocacy chair. “We want to expect more of a company like S&P.”
S&P, Moody’s Investors Service, and Fitch Ratings are the largest of 10 firms approved by the U.S. Securities and Exchange Commission to assign credit rankings used by investors and regulators to evaluate securities. Many pension and mutual funds require minimum ratings to buy debt, and banks generally must hold more capital to back bonds deemed of lower quality.
much more at Bloomberg.com
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