Standard & Poor's

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Standard & Poor's (S&P) is a division of McGraw-Hill that publishes financial research and analysis on stocks and bonds. It is well known for its US-based S&P 500, the Australian S&P/ASX 200 stock market index, the Canadian S&P/TSX Composite, Italian MIB and India's S&P CNX Nifty.

S&P's public website here.

See also credit rating agencies.

Contents

Business description

Standard & Poor's operates as a financial services company. Its products and services include credit ratings, equity research, S&P indices, funds ratings, risk solutions, governance services, evaluations, and data services. The company’s division, Capital IQ, provides information and workflow solutions to financial institutions, advisory firms, and corporations.

Capital IQ provides integrated financial information and technology solutions, including auditable company financials, a screener combining financial and nonfinancial items, an integrated public and private capital market database, and various relationship development tools. The company serves institutional professionals, financial institutions, corporations, financial advisors, and individual investors worldwide.

History

Standard & Poor's 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 was an attempt to compile comprehensive information about the financial and operational state of U.S. railroad companies. Henry Varnum went on to establish H.V. and H.W. Poor Co with his son, Henry William, and published updated versions of this book on an annual basis.

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" x 7" cards, allowing for more frequent updates.

The company as it is known today was formed in 1941 with the merger of Poor's Publishing (the successor company to H.V and H.W Poor Co) and Standard Statistics.

In 1966 S&P was acquired by The McGraw-Hill Companies, and now encompasses the Financial Services division.[1] [S&P in the news

Credit ratings

Standard & Poor's is a credit rating agency that issues credit ratings for the debt of corporations, be they public or private.

It is one of several CRAs that have been designated a Nationally Recognized Statistical Rating Organization by the U.S. Securities and Exchange Commission.

It issues both short-term and long-term credit ratings.

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 (i.e., BBB+, BBB and BBB-). For some borrowers, S&P may also offer guidance (termed a "credit watch") as to whether it is likely to be upgraded (positive), downgraded (negative) or uncertain (neutral).

Investment Grade

  • AAA  : the best quality borrowers, reliable and stable (many of them governments)
  • AA  : quality borrowers, a bit higher risk than AAA
  • A  : economic situation can affect finance
  • BBB  : medium class borrowers, which are satisfactory at the moment

Non-Investment Grade (also known as junk bonds)

  • BB  : more prone to changes in the economy
  • B  : financial situation varies noticeably
  • CCC  : currently vulnerable and dependent on favorable economic conditions to meet its commitments
  • CC  : highly vulnerable, very speculative bonds
  • C  : highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations
  • CI  : past due on interest
  • R  : under regulatory supervision due to its financial situation
  • SD  : has selectively defaulted on some obligations
  • D  : has defaulted on obligations and S&P believes that it will generally default on most or all obligations
  • NR  : not rated

Short-term issue credit ratings

S&P rates specific issues on a scale from A-1 to D. Within the A-1 category it can be designated with a plus sign (+). This indicates that the issuer's commitment to meet its obligation is extremely strong. Country risk and currency of repayment of the obligor to meet the issue obligation are factored into the credit analysis and reflected in the issue rating.

  • A-1  : obligor's capacity to meet its financial commitment on the obligation is strong
  • A-2  : is susceptible to adverse economic conditions however the obligor's capacity to meet its financial commitment on the obligation is satisfactory
  • A-3  : adverse economic conditions are likely to weaken the obligor's capacity to meet its financial commitment on the obligation
  • B  : has significant speculative characteristics. The obligor currently has the capacity to meet its financial obligation but faces major ongoing uncertainties that could impact its financial commitment on the obligation
  • C  : currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation
  • D  : is in payment default. Obligation not made on due date and grace period may not have expired. The rating is also used upon the filing of a bankruptcy petition.

S&P rejects muni-bond rating postings without payment

Standard & Poor’s rejected a Municipal Securities Rulemaking Board proposal to post ratings on the group’s website because the company wouldn’t be compensated, S&P said in a regulatory filing.

The Alexandria, Virginia-based board, which makes rules for the $2.8 trillion municipal-bond market, said last month that it would ask the U.S. Securities and Exchange Commission to approve adding ratings to its Electronic Municipal Market Access, or EMMA, website to provide more information to investors. S&P responded to the proposal in a June 22 statement to the SEC.

The board’s plan is “commercially untenable and does not appropriately account for the value” of the rating company’s intellectual property, S&P President Deven Sharma said in the statement. The company is a unit of New York-based McGraw Hill Cos.

“The absence of fair compensation and adequate intellectual-property protections for our proprietary information renders the proposal’s underlying assumptions unreasonably burdensome,” Sharma said.

The EMMA site last year began providing public access to official statements, trade data and disclosures by state and municipal governments that borrow in the market. The board announced plans to add ratings after its quarterly meeting in Philadelphia. New board rules are subject to SEC approval.

Board’s Purpose

S&P spokesman Ed Sweeney pointed out that Sharma’s statement cites the fact that the company already makes its ratings available to the public on its website. The board’s proposal says its purpose is in part “to provide credit rating and related information regarding municipal securities.”

“The MSRB has proposed displaying municipal securities ratings on EMMA to provide this important information as part of a consolidated display of key municipal market data and documents,” Lynnette Kelly Hotchkiss, the board’s executive director, said in a statement.

“We hope that all nationally recognized statistical- ratings organizations choose to participate and if they do, the MSRB will work with these organizations to establish appropriate protections for their intellectual property rights,” she said.

Stock market indices

Standard & Poor's publishes a large number of stock market indices, covering every region of the world, market capitalization level, and type of investment (e.g. indices for REITs and preferred stocks)

Criticism

Credit rating agencies such as Standard & Poor's have been subject to criticism in the wake of large losses beginning in 2007 in the collateralized debt obligation (CDO) market that occurred despite being assigned top ratings by the CRAs.

Ratings of AAA were seen as approval on large portions of even the riskiest pools of loans, rating agencies helped lure investors into loading on collateralized debt obligations (CDOs) that are became unsellable. Kathleen Corbet was President until August 2007, when most of these decisions were made.

For instance, losses on $340.7 million worth of collateralized debt obligations (CDO) issued by Credit Suisse Group added up to about $125 million, despite being rated AAA by Standard & Poor's.[2]

It is also worth mentioning that Standard & Poor's apparently failed to predict the bankruptcy of all largest Icelandic banks and a weaker position of Icelandic Government in 2008, a country that had a very high rating until its economy suddenly collapsed.

In April 2009 Standard & Poor's called for "new faces" in the Irish Government, which was seen as interfering in the democratic process.In a subsequent statement they said they were "misunderstood."[3]

Competitors

References


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