At a Glance
"Kissing up" is a standard practice
Poor future outlook
About Standard & Poor's
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.
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.