S&P says U.S. to file civil lawsuit over ratings

Reuters ^ | February 4, 2013 | Staff

[LucianOfSamasota]

(Reuters) - Standard & Poor's on Monday said it expects to be the target of a U.S. Department of Justice civil lawsuit over its ratings of mortgage bonds prior to the recent financial crisis.

The lawsuit against the McGraw-Hill Cos (MHP.N) unit focuses on its ratings in 2007 of various U.S. collateralized debt obligations (CDO), S&P said.

It would be the first federal enforcement action against a credit rating agency over alleged illegal behavior tied to the financial crisis.

"A DOJ lawsuit would be entirely without factual or legal merit," S&P said in a statement. "The DOJ would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith."

The Justice Department was not immediately available for comment.

Several state attorneys general are expected to join the case, The Wall Street Journal said, citing people familiar with the matter. The expected charges follow the breakdown of talks between the department and S&P, the newspaper said, citing the people.

In afternoon trading, McGraw-Hill shares were down $2.39, or 4.1 percent, at $55.95.

S&P and its main rivals, Moody's Corp's (MCO.N) Moody's Investors Service and Fimalac SA's (LBCP.PA) Fitch Ratings, have long faced criticism from investors, politicians and regulators for assigning high ratings to thousands of subprime and other mortgage securities that quickly turned sour.

[LucianOfSamasota]

I wonder if this is an attempt by the Administration to influence the ratings of US bonds? Downgrade us again and we'll wreck your business?

[jpl]

That’s exactly the first thing that came to my mind as well.

[Wyatt's Torch]

They’ve already sued the banks that sold the structured finance products so this is just the next step. I assume they will sue AIG for being the counterparty to billions of CDS’s.

As for the rating, UST’s rallied to all time highs (lows for yields) after the downgrade. It was meaningless to the market.

[Da Coyote]

Under Holder the Underwhelming, the DOJ has about as much gravitas as Dan Rather.

Of course, truth, justice, and the American Way are a joke under the chief dork, so convictions may be forthcoming.

[Lonesome in Massachussets]

You’re not suggesting that there’s even the appearance of a conflict of interest? Naw, can’t be.

[GraceG]

How long before the Dow is told to report whatever numbers the government tells it to put out???

Oh wait...

Does the whitehouse think S&P should be acting like the media????

[LucianOfSamasota]

We’re still monetizing our debt though, aren’t we? Hasn’t Bernanke decided on a permanent QE at the rate of $85 billion per month or so?

[Tzimisce]

I was warning everyone this was going to happen.

Wonder how many at S+P voted Obama. I’m guessing most....

[Wyatt's Torch]

It’s $45 billion/month primarily in in MBS’s. Bid to cover ratio’s for UST’s are still strong. UST’s are still the primary vehicle for “flight to safety.”

[OneWingedShark]

I wonder if this is an attempt by the Administration to influence the ratings of US bonds? Downgrade us again and we'll wreck your business?

They should respond with "twitch and we'll down-grade you so fast your children will laugh when you ask for money."
After all, by S&P's rating system, the US would likely be 'CC' -- though a 'C-' would not be unreasonable.

The general meaning of our credit rating opinions is summarized below.
‘AAA’—Extremely strong capacity to meet financial commitments. Highest Rating.
‘AA’—Very strong capacity to meet financial commitments.
‘A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.
‘BBB’—Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.
‘BBB-‘—Considered lowest investment grade by market participants.
‘BB+’—Considered highest speculative grade by market participants.
‘BB’—Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.
‘B’—More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.
‘CCC’—Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.
‘CC’—Currently highly vulnerable.
‘C’—Currently highly vulnerable obligations and other defined circumstances.
‘D’—Payment default on financial commitments.

Note: Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

[LucianOfSamasota]

Maybe it hasn’t actually happened yet? And its only PLANNED for 2013?

Anyway, a lot of folks carry the $85 billion figure, including $45 billion in UST’s:

“Under the Fed’s plan for 2013, the central bank will purchase $40 billion a month of mortgage-backed securities and $45 billion a month of long-term Treasury securities. That puts it on course to purchase $540 billion worth of Treasury securities if the policy is continued all year and $480 billion worth of mortgage bonds.”

http://online.wsj.com/article/SB10001424127887323981504578175362999853652.html

“Big Ben has been on a buying spree: In a third round of quantitative easing, the Fed is now snapping up $40 billion a month of mortgage-backed securities and $45 billion of Treasurys.”

http://www.forbes.com/profile/ben-bernanke/

[SargeK]

Imagine YOUR credit rating from TranUnion, Experian, etc. if you went from paying your Visa with your MasterCard to paying all of it with brightly colored pieces of paper that you produced on the office printer. Are negative numbers possible?

That is essentially what is happening at the Fed.

[4Liberty]

Like suing a broken thermometer, when you have a fever.

Thanks to ACORN, banks expected to get bailouts in ret. for issuing bad loans. So why was S & P “misleading” in that situation??

The only risk was to the taxpayers...

[fso301]

What will Rahm have to say?

[upchuck]

This is BS. Buncha trumped up charges that will go nowhere.

This is nobama and Holder kicking S&P’s ass for the credit downgrade and a warning not to do it again. Pure and simple.

Let’s hear it for S&P! Got moxie. Got principles. Got standards. Got cojones. Everything that Holder and nobama don’t have.

[familyop]

"I wonder if this is an attempt by the Administration to influence the ratings of US bonds? Downgrade us again and we'll wreck your business?"

Obviously. Many investor constituents are mad at S&P for downgrading US debt. They want the US dollar propped high, even if it means shutting down what little remains of US manufacturing and exports (even if it cases "TEOTWAWKI," and all of that). Our nation is morally bankrupt. Most business is government-connected, and most business produces nothing that we need.

[1010RD]

Or they’re looking to plug the deficit with ready cash.

[Roland]

This is BS. Buncha trumped up charges that will go nowhere.

No, the charges are legitimate but the question is Will they be filling charges against Moody’s or Fitch for their poor ratings? Doubtful after all Moody’s and Fitch did not downgrade the government. The other (and first) agency to downgrade their bonds, Egan-Jones, reached a settlement last week prohibiting them from rating sovereigns for 18 months. Perhaps this is what they want from S&P. The message is clear. If you downgrade sovereigns you will pay the price.

[catnipman]

Just plain ol ordinary garden variety fascism here folks. Nothing to see. Move along.

[TArcher]

>>We’re still monetizing our debt though, aren’t we?

More like monetizing our children’s and grand-children’s debt.

And as a parent, that irritates me into the “ETERNAL HOSTILITY” spectrum.