Ratings kings
New York-based Standard & Poor's is the most well known
ratings agency on the planet. Often referred to as simply
S&P, the firm has the world's largest network of credit ratings
analysts, and its equity research division is the world's largest
producer of independent equity research. More than 1,000
institutions -- including the top securities firms, banks and life
insurance companies -- license its research for their investors and
advisors. Each year, Standard & Poor's publishes more
than 800,000 new and revised ratings. Its team of experienced
European, Asian and U.S. equity analysts assess approximately 2,000
equities across more than 120 industries worldwide. And it
rates about $32 trillion in debt annually. The firm is also
well known for its stock indices. Its S&P 500, which
includes large-cap U.S. public companies, is one of the most
followed indices in the nation. Although Standard &
Poor's took a hit to its reputation in the wake of the worldwide
financial crisis of 2008 -- for giving high ratings to securities
that turned out to be worthless -- it is still the place to be in
the financial ratings industry. And it has been for a long
time: its history dates back to 1860. In 1966, S&P was
acquired by The McGraw-Hill Companies.
Poor in name only
When Henry Varnum Poor published his History of Railroads and Canals of the
United States in 1860, he likely never dreamed he had begun
what would become a global corporation with enormous influence over
capital markets and the world economy. However, 81 years
later, a 1941 merger of Standard Statistics and Poor's Publishing
Company created one of the world's most prominent independent
credit ratings, market indices, risk evaluation, investment
research and data companies. A quarter-century after that
combination, in 1966, McGraw-Hill, the multibillion-dollar
publishing company known for its elementary and high school
textbooks and other media businesses, acquired the company.
Subprime testimony
In the early 2000s, the United States was starting to feel the ill
effects of subprime mortgage. In an attempt to address the
national problem, Congress set up an investigative committee and
Standard & Poor's Executive Vice President Vicky A. Tillman
testified before Congress in September 2007 to answer questions
about the credit agency's role in the subprime mortgage situation,
which was by then becoming a crisis. Critics claim that
ratings firms failed investors by endorsing mortgage-backed bonds
and other risky products in exchange for large fees. "We
support Congress' efforts to investigate … abuses and to prevent
their recurrence," Tillman said during her testimony. "For
our part, we are taking steps to ensure that our ratings and the
assumptions that underlie them are analytically sound in light of
shifting circumstances." In October 2007, Standard &
Poor's downgraded more than 1,700 bonds tied to mortgages issued
within the year. More than three dozen of the bonds had
received the agency's highest rating earlier in the year.
New places, faces and
controversies
The company looked to the East-the Middle East, specifically-in
2008 when it purchased Israeli rating agency Maalot in January 2008
and changed its name to Maalot Standard & Poor's.
Standard & Poor's said the acquisition would allow the company
to develop analytical services for Israel and international
investors. In August 2008, S&P appointed David Jacob to
the position of executive managing director and head of structured
finance ratings. Jacob will be overseeing S&P's
structured finance unit in his new role. Overseas in 2009,
Standard & Poor's Frank Gill-a credit rating analyst based in
London-caused a controversy when he called out for "new faces" in
the Ireland government to solve its financial crisis. This
drew the ire of Ireland's Taoiseach-Prime Minister, in layperson's
terms-Brian Cowen, who questioned the credibility of Gill's
comments, adding that the credit rating analyst should just stick
to his job rather than meddle with Irish politics. Gill made
the controversial comments through a radio morning show but
maintained that he was simply "misunderstood" by the
Taoiseach.