Credit Ratings Agencies Now Attacking Each Other’s “Worthiness”
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Standard & Poor’s said recently it was likely to cut its credit ratings for Moody’s, its biggest competitor,
warning that the sweeping financial regulatory bill in Congress would increase the risk that Moody’s — and itself — could be sued.
Both S.&P. and Moody’s, along with Fitch Ratings, have been sharply criticized for giving their top ratings to securities that turned out to be junk when the financial crisis hit.
Standard & Poor’s said recently it was likely to cut its credit ratings for Moody’s, its biggest competitor,
warning that the sweeping financial regulatory bill in Congress would increase the risk that Moody’s — and itself — could be sued.
Both S.&P. and Moody’s, along with Fitch Ratings, have been sharply criticized for giving their top ratings to securities that turned out to be junk when the financial crisis hit.
The big question now, of course, is when will Moody’s Investors Service threaten to cut its ratings on S.&P.
S.&P. said that it was putting Moody’s on CreditWatch with negative implications and that there was a 50 percent chance or more that it would cut the company’s A-1 short-term.
In a statement, S.&P. said the financial regulatory bill “contains a provision whereby investors may be able to sue rating agencies
if they can show that the agency knowingly or recklessly failed to conduct a reasonable investigation of the factual elements” in order to reach its ratings.
According to S.&P., the new regulations would lead to “an increase in litigation-related costs,” and
“Moody’s may face higher operating costs, lower margins and increases in litigation-related event risk, which would likely increase its business risk.”
S.&P. also said the financial regulatory bill might “reduce investor demand for ratings”
if the final legislation removes the need for corporations to be rated by “nationally recognized statistical rating organizations” —
namely, itself, Moody’s and Fitch, according to this DealBook column in the New York Times.
And S.&P. warned that other regulations elsewhere in the world could further increase the risks for credit-rating industry.
So it looks like we may well see a round robin of rating cuts for the credit-rating agencies.
Talk about dog eat dog.
