4 August 2008

who will rate the raters?

S&P emails slammed mortgage debt products
Sat Aug 2, 12:36 PM ET
by Jim Marshall

CHICAGO (Reuters) - Analysts at Standard & Poor's Rating Services warned against mortgage-related debt products in internal e-mails that, in one case, called the complex financial deals "ridiculous," the Wall Street Journal reported in its weekend edition.

The Journal cited a draft revision of a U.S. Securities and Exchange Commission report on bond-rating firms that was first released on July 8.

In one email message, an S&P analyst called a mortgage or structured finance deal "ridiculous" and wrote "we should not be rating it."

In another email, an S&P manager said ratings agencies were helping to create an "even bigger monster -- the CDO (collateralized debt obligation) market. Let's hope we are all wealthy and retired by the time this house of card falters."

Rating agencies struggled with the growth of asset-backed securities and saw breaches in their conflict-of-interest policies, according to the report released early last month on an industry blamed for helping contribute to the subprime mortgage crisis.

An SEC examination "uncovered serious shortcomings," SEC Chairman Christopher Cox said when the report was released, adding that the problems are being fixed.

The SEC spent 10 months looking at the biggest ratings firms: Moody's, Standard & Poor's and Fimalac SA's Fitch Ratings.

A spokesman for Standard & Poor's, a unit of McGraw-Hill Companies Inc (MHP.N), was not immediately available to comment on the Journal report.

No comments: