S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is considered the largest of the Big Three credit-rating agencies, which also include Moody's Ratings and Fitch Ratings.[2] Its head office is located on 55 Water Street in Lower Manhattan, New York City.[3]
Corporate history
The company traces its history back to 1860, with the publication by Henry Varnum Poor of History of Railroads and Canals in the United States. This book compiled comprehensive information about the financial and operational state of U.S. railroad companies. In 1868, Henry Varnum Poor established H.V. and H.W. Poor Co. with his son, Henry William Poor, and published two annually updated hardback guidebooks, Poor's Manual of the Railroads of the United States and Poor's Directory of Railway Officials.[4]
In 1906, Luther Lee Blake founded the Standard Statistics Bureau, with the view to providing financial information on non-railroad companies. Instead of an annually published book, Standard Statistics would use 5-by-7-inch cards, allowing for more frequent updates.
In 1941, Paul Talbot Babson purchased Poor's Publishing and merged it with Standard Statistics to become Standard & Poor's Corp. In 1966, the company was acquired by The McGraw-Hill Companies, extending McGraw-Hill into the field of financial information services.[5]
Credit ratings
As a credit rating agency (CRA), the company issues credit ratings for the debt of public and private companies, and public borrowers such as governments, governmental agencies, and cities. It is one of several CRAs that have been designated a nationally recognized statistical rating organization (NRSRO) by the U.S. Securities and Exchange Commission.
Long-term credit ratings
S&P rates borrowers on a scale from AAA to D. Intermediate ratings are offered at each level between AA and CCC (such as BBB+, BBB, and BBB−). For some borrowers issuances, the company may also offer guidance (termed a "credit watch") as to whether it is likely to be upgraded (positive), downgraded (negative) or stable.
Investment Grade
Non-Investment Grade (also known as speculative-grade)
- AAA: An obligor rated 'AAA' has extremely strong capacity to meet its financial commitments. 'AAA' is the highest issuer credit rating assigned by Standard & Poor's.
- AA: An obligor rated 'AA' has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree. Includes:
- AA+: equivalent to Moody's Aa1 (high quality, with very low credit risk, but susceptibility to long-term risks appears somewhat greater)
Governance scores
S&P has had a variety of approaches to reflecting its opinion of the relative strength of a company's corporate governance practices. Corporate governance serves as investor protection against potential governance-related losses of value, or failure to create value.
CGS scores
S&P developed criteria and methodology for assessing corporate governance. It started issuing Corporate Governance Scores (CGS) in 2000. CGS assessed companies' corporate governance practices. They were assigned at the request of the company being assessed, were non-public (although companies were free to disclose them to the public and sometimes did) and were limited to public U.S. corporations. In 2005, S&P stopped issuing CGS.[6]
GAMMA scores
S&P's Governance, Accountability, Management Metrics and Analysis (GAMMA) scores were designed for equity investors in emerging markets and focused on non-financial-risk assessment, and in particular, assessment of corporate governance risk. S&P discontinued providing stand-alone governance scores in 2011, "while continuing to incorporate governance analysis in global and local scale credit ratings".[7]
Downgrades of countries
Downgrade of U.S. long-term credit rating
On August 5, 2011, following enactment of the Budget Control Act of 2011, S&P lowered the US's sovereign long-term credit rating from AAA to AA+.[10] The press release sent with the decision said, in part:
The United States Department of the Treasury, which had first called S&P's attention to its $2 trillion error in calculating the ten-year deficit reduction under the Budget Control Act, commented, "The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P's ratings action."[11] The following day, S&P acknowledged in writing the US$2 trillion error in its calculations, saying the error "had no impact on the rating decision" and adding:[12] "In taking a longer term horizon of 10 years, the U.S. net general government debt level with the current assumptions would be $20.1 trillion (85% of 2021 GDP). With the original assumptions, the debt level was projected to be $22.1 trillion (93% of 2021 GDP).
Publications
The company publishes The Outlook, a weekly investment advisory newsletter for individuals and professional investors, published continuously since 1922.[17] Credit Week is produced by Standard & Poor's Credit Market Services Group. It offers a comprehensive view of the global credit markets, providing credit rating news and analysis. Standard & Poor's offers numerous other editorials, investment commentaries and news updates for financial markets, companies, industries, stocks, bonds, funds, economic outlook and investor education. All publications are available to subscribers.[18]
S&P Dow Jones Indices publishes several blogs that do not require a subscription to access. These include Indexology, VIX Views and Housing Views.[19]
Criticism and scandal
Role in the 2008 financial crisis
Credit rating agencies such as S&P have been cited for contributing to the 2008 financial crisis.[20] Credit ratings of AAA (the highest rating available) were given to large portions of even the riskiest pools of loans in the collateralized debt obligation (CDO) market. When the real estate bubble burst in 2007, many loans went bad due to falling housing prices and the inability of bad creditors to refinance. Investors who had trusted the AAA rating to mean that CDO were low-risk had purchased large amounts that later experienced staggering drops in value or could not be sold at any price. For example, institutional investors lost $125 million on $340.7 million worth of CDOs issued by Credit Suisse Group, despite being rated AAA by S&P.[21][20]
Companies pay S&P, Moody's, and Fitch to rate their debt issues. As a result, some critics have contended that the credit ratings agencies are beholden to these issuers in a
Antitrust review
In November 2009, ten months after launching an investigation, the European Commission (EC) formally charged S&P with abusing its position as the sole provider of international securities identification codes for United States of America securities by requiring European financial firms and data vendors to pay licensing fees for their use. "This behavior amounts to unfair pricing," the EC said in its statement of objections which lays the groundwork for an adverse finding against S&P. "The (numbers) are indispensable for a number of operations that financial institutions carry out – for instance, reporting to authorities or clearing and settlement – and cannot be substituted.”[28]
S&P has run the CUSIP Service Bureau, the only International Securities Identification Number (ISIN) issuer in the US, on behalf of the American Bankers Association. In its formal statement of objections, the EC alleged "that S&P is abusing this monopoly position by enforcing the payment of licence fees for the use of US ISINs by (a) banks and other financial services providers in the EEA and (b) information service providers in the EEA." It claims that comparable agencies elsewhere in the world either do not charge fees at all, or do so on the basis of distribution cost, rather than usage.[29]
See also
- Global Industry Classification Standard
- List of countries by credit rating
- Nationally recognized statistical rating organization
- Moody's Ratings
- Fitch Ratings
External links
References
- S&P | About S&P | Americas – Key Statistics Standard & Poor's, retrieved August 7, 2011^
- Blumenthal, Richard. Three Credit Rating Agencies Hold Too Much of the Power Juneau Empire – Alaska's Capital City Online Newspaper, May 5, 2009, retrieved August 7, 2011^
- Corporate 55 Water Street New York New York