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Entries in Standard & Poor's (23)

Wednesday
Aug312011

S&P Rates Subprime Mortgages Higher Than U.S. Debt

Scott Eells/Bloomberg via Getty Images(WASHINGTON) -- Standard & Poor’s, which downgraded the U.S. debt earlier this month, is rating a set of subprime mortgage securities as AAA, a notch above the U.S. credit rating of AA+.

Bloomberg is reporting that S&P awarded the top rating to a group of bonds tied to $497 million lent to homeowners with below-average credit scores and “almost no equity in their properties.” Most of the mortgages of Springleaf Finance Corp., which created the securities, are categorized as subprime or nonprime loans, according to Hoover’s. Springleaf is based in Evansville, Indiana.

S&P downgraded U.S. sovereign debt to AA+ on Aug. 5, resulting in criticism and scrutiny of the ratings agency and a swoon and in world stock prices.

S&P said the downgrade reflected its opinion that Congress’ U.S. deficit consolidation deal “falls short” of what is needed to “stabilize the government’s medium-term debt dynamics.”

The ratings firm defended its grade on the subprime mortgages -- loans the likes of which many experts say led to bursting of the housing bubble that started the economy on its tailspin -- in a statement to Bloomberg.

Copyright 2011 ABC News Radio

Tuesday
Aug302011

Home Prices Rise in June, Second Quarter, but Still Lag

Stockbyte/Thinkstock(NEW YORK) -- For a third consecutive month, home prices in most major U.S. cities rose in June, according to the latest Standard & Poor's/Case-Shiller index of home prices.

The report shows that prices were up from May in 19 of the 20 largest metropolitan areas in the country.  In more than half of the regions -- 12 areas in total -- prices were up for a third straight month in June.

Despite the increases, prices were still down from the same time period last year -- an indication that the housing market still has a way to go on its road to recovery.

The report also shows that home prices jumped 3.6 percent in the second quarter of 2011 after falling 4.1 percent in the previous three months.  However, that figure, too was lower -- down 5.9 percent -- when compared to last year's second quarter.

Copyright 2011 ABC News Radio

Monday
Aug222011

S&P President Deven Sharma Resigns; Citibank Exec to Replace Him

Jay Mallin/Bloomberg via Getty Images(NEW YORK) -- Deven Sharma, president of Standard & Poor's, the rating company that downgraded the U.S. AAA credit rating, setting off weeks of volatility in the global markets, has resigned.

On Monday, S&P owner McGraw-Hill announced Sharma's decision to "pursue other opportunities" amid reports that the Justice Department is investigating S&P regarding its rating for various mortgage securities leading up to the financial crisis, but claims Sharma's resignation has no relation to the matter, according to the Financial Times.

Citibank chief operating officer Douglas Peterson will replace Sharma next month as Sharma continues with S&P in an advisory role until the end of the year.

McGraw-Hill said Monday that the search for a new S&P president has been going on since the firm's split into two organizations -- S&P and McGraw-Hill Financial -- at the end of last year.

"Deven assisted us with the creation of these two high- growth segments and was then ready for new challenges.  Accordingly, we began a process to identify a new leader for S&P," McGraw-Hill stated in a release Monday.

McGraw-Hill appointed Sharma S&P president in 2007.

Copyright 2011 ABC News Radio

Thursday
Aug182011

DOJ Investigating Standard & Poor's Ratings of Mortgage Securities

Scott Eells/Bloomberg via Getty Images(WASHINGTON) -- Credit rating agency Standard & Poor's is in possible trouble with the Justice Department about whether its ratings of dozens of mortgage securities were deliberately inaccurate, in turn contributing to the near meltdown of the financial industry in September 2008.

The action comes on the heels of S&P's decision earlier this month to lower the AAA rating of the U.S., which sent Wall Street into a tailspin.  However, the Obama administration's decision to conduct an investigation into S&P's rating of mortgage securities began before the downgrade.

Specifically, the government is looking into reports that S&P business managers overruled the findings of company analysts who wanted to downgrade the ratings of mortgage bonds.

In the years leading up to the collapse of the housing market, S&P and other agencies made huge profits on their high ratings of bundled mortgages, which valued them far more highly than their actual worth.

S&P could be in hot water if the Justice Department determines that its analysts put their company's business concerns ahead of their supposed independent evaluations.  However, criminal charges are unlikely, although a civil suit is possible.

Copyright 2011 ABC News Radio

Saturday
Aug132011

SEC Reviews S&P Downgrade Analysis Method

Scott Eells/Bloomberg/Getty Images(NEW YORK) -- The method used by Standard & Poor’s to cut the U.S.’s credit rating is under review by the Securities and Exchange Commission.

Bloomberg News reports that the SEC is investigating the S&P’s means of reaching their calculated downgrade—that U.S. officials allege is a flawed analysis—that is being held accountable for wiping nearly $6.8 trillion from global stock values from July 26 to Aug. 11.

The New York-based rating company lowered the nation’s AAA grade to AA+ on Aug. 5.

Copyright 2011 ABC News Radio´╗┐

Tuesday
Aug092011

Downgrade Backlash Puts S&P Under Microscope

Scott Eells/Bloomberg via Getty Images(DETROIT) -- First, Standard & Poor's downgraded U.S. debt from AAA to AA+.  Now, critics in and out of government are returning fire -- downgrading the credit rating company rhetorically and perhaps soon putting it under a more official microscope.

Even as S&P issued new rating downgrades from AAA to AA+ against municipal entities backed by federal leases in Miami, Atlanta and Tacoma, Washington, according to Bloomberg, the Senate Banking Committee was looking at S&P, ABC News has learned.

A committee aide said the Democrat-controlled body "is looking into the issue and gathering more information" but emphasized that so far there was no official committee probe or investigation.

In Detroit Monday, as homeowners about to lose their houses to foreclosure tried to restructure their toxic mortgages once rated AAA by S&P, a populist backlash was forming against one of the most powerful economic voices in this country.

"What credibility does S&P have as a credit agency when they did such a terrible job?" asked Peter Lawler, a homeowner.

ABC News has received angry emails from the outraged, who've called the S&P downgrade "ridiculous," "unpatriotic," saying the company should be ashamed.

"Credits agencies are a scam," wrote Judy from Georgetown, Texas.

So who are these guys who make the decisions some Americans seem so angry about?

Standards & Poor's Rating Service has been grading corporate bonds for 90 years.  Today, it has 1,226 employees and does $75 million in business every year in more than 20 countries.

But Jules Kroll, one of its main critics, who started his own, smaller rating service, says S&P is not big enough to judge 100 countries because it has only about 100 actual analysts.

"Doing analysis of the economy of the United States and its likelihood of default is something that requires enormous resources that go far beyond the resources of S&P," Kroll said.

S&P missed the Enron crisis, giving the failed company high ratings until the day it went bankrupt.  In 2008, it gave a AAA rating to toxic waste mortgages.  Then, it gave an A rating to Lehman Brothers just before the investment bank went under.  It also failed to sound the warning about the serious economic troubles in Ireland, Spain and Greece.

Despite the anger at S&P, critics have argued that it is merely the messenger, and that the government is to blame for not getting its fiscal house in order sooner.

Copyright 2011 ABC News Radio

Tuesday
Aug092011

Along with Stocks, Crude Oil Prices Are Also in Freefall

Comstock Images/Thinkstock(WASHINGTON) -- Just two weeks ago, oil prices were headed upward, to more than $100 a barrel for crude.  But by the end of the day Monday, the price of oil was down to about $81 a barrel and could fall lower than that.

The downgrading of the U.S. credit rating by Standard & Poor's, fears of another recession and volatile world markets have sent oil prices plummeting.  Ironically, major forecasting agencies were predicting an upswing of prices due to global demand surpassing supplies.

In one sense, falling oil prices are bad because they reflect a world economy in crisis.  On the other hand, it might mean that motorists in the U.S. could soon be paying a lot less for gasoline, provided they have any money left to spend once Wall Street is done tanking.

Copyright 2011 ABC News Radio

Monday
Aug082011

Asian Markets Close Down After Downgrading of US Credit Rating

Hemera Technologies/Thinkstock(TOKYO) -- After opening the day down 1.4 percent and holding steady during morning trading, Tokyo's Nikkei stock market tumbled Monday afternoon, closing the day down 2.2 percent in its first day of trading since the United States' credit rating was downgraded for the first time in history last week.

The drop came even after G7 nations pledged to take measures to support financial stability and growth.

The news in other Asian markets was not so promising.  Hong Kong's Hang Seng plunged over three percent and South Korea's Kospi slipped 3.8 percent.

Australia's S&P/ASX-200 index also ended the day down 2.9 percent and indexes in New Zealand fell close to three percent.

The mixed reports likely won't do much to quell growing concerns that Standard & Poor's downgrade of the U.S. credit rating from AAA to AA+ could rock global financial markets.

There are efforts across the world to calm markets in light of the downgrading, which the White House has labeled "amateurish" and "breathtaking."

President Obama himself, however, has not spoken.  Returning from Camp David on Sunday, the president waved off reporters asking questions about the first downgrading ever of U.S. credit.

Even with the administration's heated criticism of S&P over the downgrading, the rating agency is not only standing by the decision, it is saying a further downgrade is possible if the United States doesn't solve its debt problem in two years.

The rating agency's managing director John Chambers said Sunday on ABC News' This Week with Christiane Amanpour that there's "at least a one in three chance of a downgrade over that period."

He has blamed the downgrade squarely on Washington politics, saying "this is not a serious way to run a country."

"Our job is to hold the mirror up to nature, and what we are telling investors is that we have a spectrum that runs from AAA to D," Chambers told ABC News.  "And what we're seeing is that the United States government is slightly less credit worthy."

The rating agency says Washington has shown an inability to reach political consensus, which was highlighted by the debate on the debt ceiling, and this leaves the U.S. "less stable, less effective."

Copyright 2011 ABC News Radio

Wednesday
Jul272011

Robert Reich: S&P Debt Warning is 'Height of Hubris'

Medioimages/Photodisc(WASHINGTON) -- It's the "height of hubris" for ratings agency Standard & Poor's to suggest it may cut the credit rating of the U.S. even if the debt crisis is solved, says Robert Reich, former labor secretary in the Clinton administration.

"No credit rating agency has gone as far as S&P," he told ABC News on Wednesday. "That's a highly political move. I'm surprised they are doing it."

Reich, who is a professor of public policy at the University of California, Berkeley and has also worked under Presidents Carter and Obama, called the credit rating agency's latest reports "irresponsible."

With just days to go until the Treasury estimates the U.S. could default on its sovereign debt, Reich said S&P has no business sharing its political opinions about U.S. economic policy. The U.S. currently has the highest AAA rating on its debt, which tops $14 trillion. A lower debt rating would mean higher borrowing costs for the U.S., adding billions more to the debt.

While ratings agencies testified Wednesday at a House financial services committee hearing on their role in the subprime mortgage market, Reich pointed out that Standard & Poor's contributed to the financial meltdown by giving AAA ratings to some of Wall Street's riskiest packages of mortgage-backed securities and collateralized debt obligations.

S&P's threat of a downgrade to the nation's credit rating goes one step further than Moody's and Fitch, the other two major credit rating agencies, by declaring even if Congress agrees to lift the $14.3 trillion debt limit, they and President Obama must also reduce the deficit by $4 trillion over 10 years.

In April, Standard & Poor's cut the U.S. ratings outlook to negative from stable and warned that its AAA rating is at risk unless lawmakers agree on a plan by 2013 to reduce the budget deficit and nation's debt.

On July 13, Moody's said it was reviewing the country's credit rating for a possible downgrade.

In one Standard & Poor's report on July 18, the agency stated it may lower the U.S. long-term rating "by one or more notches" into the "AA" category in the next three months if it concludes Congress and the White House "have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future."

On Wednesday, Fitch Ratings said U.S. treasuries would continue to be the "global benchmark security" in the long term because of the country's strong credit profile. Fitch's report said the $9.3 trillion in marketable U.S. Treasury securities is roughly five times the size of French ($1.9 trillion), UK ($1.8 trillion), and German ($1.6 trillion) government bond markets.

While there is no precedence for a downgrade on U.S. sovereign debt, Fitch said the most recent standard of comparison is Japan's downgrade to AA+ from AAA in September 1998, and in May, when Fitch gave Japan's current 'AA' rating a "Negative Outlook."

"Japanese government bond markets remain liquid despite losing AAA status, and the yen has retained its role as a major global currency," the report stated. David Stockman, former director of the Office of Management and Budget under President Ronald Reagan, told ABC News that the coast is not clear for financial markets.

"Bond fund managers are as clueless as the House GOP," Stockman said. "Without significant tax increases, the Federal budget is a financial doomsday machine -- but now even Obama and the Senate Dems have given up on taxes. So in substance, the default has already happened -- it's just a matter of time before bondageddon actually happens."

Copyright 2011 ABC News Radio

Friday
Jul222011

American Debt: S&P Paints a Scary Picture

Hemera Technologies/Thinkstock(WASHINGTON) -- Credit rating agency Standard & Poor’s issued a report Thursday outlining what it expects might happen in the coming weeks as Congress and the Obama administration struggle with the hard work of raising the debt limit and crafting a deficit reduction plan.

“In our view, the need for an agreement to raise the debt ceiling before it is breached -- which the government has said would occur on or around Aug. 2 -- remains a major risk to the U.S. economy, in our view,” says the report. “Because we see a real risk that efforts to reduce future deficits may meaningfully miss the targets that Congressional leaders and the White House have discussed, we put the likelihood that we would lower the long-term rating on the U.S. within the next three months and potentially as soon as early August--by one or more notches, into the 'AA' category -- at about 50-50.”

The report jumps in with explorations of three scenarios:

  • THE GOOD (Raise the Limit; Credible Deficit Reduction):  “If the opposing camps agree to raise the debt ceiling before the deadline and come to terms on a long-term debt-reduction plan, Standard & Poor's would likely affirm the U.S. ratings and remove them from CreditWatch. It is possible, however, that the rating outlook could remain negative while we evaluate the likelihood that an agreed plan will be implemented.”

  • THE BAD (Raise the Limit; No Credible Deficit Reduction): “Under this scenario, we might lower the U.S. sovereign rating [one or two notches] with a negative outlook within three months and potentially as soon as early August...We assume that under this scenario we would see a moderate rise in long-term interest rates (25-50 basis points), despite an accommodative Fed, due to an ebbing of market confidence, as well as some slowing of economic growth (25-50 basis points on GDP growth) amid an increase in consumer and business caution.”

  • THE UGLY (Don’t Raise the Limit; No Deficit Reduction and a Technical Default in August): “...while we think this possibility is the least likely, we find it difficult to disagree that it would wrack global financial markets and likely shove the U.S. economy back into recession.”

    -- Interest rates rise; markets start to drop and the dollar loses value

    -- “We think it possible that the Treasury could successfully roll over the $59 billion in maturities due on Aug. 4 and Aug. 11, and could make the Aug. 3 Social Security payments, while sharply cutting discretionary spending and delaying payments to state governments, vendors and contractors, and federal employees.”

    -- By August 15 when the government has $62 billion in interest payments due, S&P envisions an actual default (we don’t pay the interest due to the holders of the Treasuries)

    -- “Even if the Fed and other central banks managed to keep the financial system functioning, we expect that markets around the world would be severely damaged. In such a hypothetical scenario, we expect that equity markets would generally plunge, borrowing costs and interbank lending rates would soar, and corporate credit markets would be closed to all but the highest quality issuers. We envisage that consumers and businesses would likely stop spending on all but essential items, and the value of the dollar would drop by 10% or more against other major currencies. With the dollar heading lower, investors would likely look for hard assets like oil and other commodities, driving prices higher.”


They do end on a high note though, offering up some hope that the worst case isn’t the most likely case.

“Collaboration on substantial spending cuts appears to be within reach, though we see demands that spending be trimmed by as much as the increase in the debt limit as a potential stumbling block. Still, we expect that cooler heads will prevail in the end, and Washington will avert a default. The consequences of not doing so would simply be too severe, in our view.”

Copyright 2011 ABC News Radio







ABC News Radio