Credit rating execs to face congressional heat

Credit rating execs to face congressional heat
By Karey Wutkowski | Reuters – 10 mins ago

WASHINGTON (Reuters) - Executives from U.S. credit rating agencies are expected to face sharp congressional scrutiny on Wednesday for their companies' roles in the financial crisis and the U.S. debt ceiling debate.

Deven Sharma, president of McGraw-Hill Cos Inc unit Standard & Poor's, and Michael Rowan, global managing director for the commercial group at Moody's Corp's Moody's Investors Service, are due to appear before the House Financial Services subcommittee.

The hearing was originally scheduled to analyze whether the 2010 Dodd-Frank financial oversight law had succeeded in reducing investors' blind reliance on rating agencies.

Such companies have been blamed for helping to fuel the financial crisis by assigning top ratings to securities that were backed by subprime mortgages, which then plummeted in value as the housing market collapsed.

But, it is the companies' front-and-center role in the deficit debate that is now expected to draw the most heat.

The agencies have been criticized for issuing ratings and warnings that negatively reflect on countries in the throes of sensitive negotiations regarding sovereign debt, including Greece and the United States.

"The debt ceiling negotiations and the long-term fiscal health of the U.S. have brought a renewed focus on the credit rating agencies," Randy Neugebauer, chairman of the oversight subcommittee, said in a statement on Tuesday.

U.S. lawmakers are trying to reach a deal by August 2 to raise the $14.3 trillion U.S. debt limit and avoid a credit default.

WHOSE CREDIBILITY IS AT STAKE?

Rating agencies have warned that the United States needs to come up with a credible deficit-reduction plan to keep its triple-A rating in the long term. S&P has threatened to downgrade the country in the next three months in the absence of such a plan.

In prepared testimony released on Tuesday and due to be delivered on Wednesday, Sharma and Rowan said their companies were embracing Dodd-Frank reforms, including dropping credit ratings from information used by government agencies when judging the riskiness of a company.

A Republican aide said lawmakers would press regulators and rating agency executives on whether Dodd-Frank perpetuates the market power of the Big Three rating agencies -- S&P, Moody's and Fimalac SA's Fitch Ratings.

Republicans will question whether the cost to rating agencies to comply with new regulations is so high that it stifles competition, the aide said.

In the testimony, Sharma warned against over-regulation by the government that would push the companies into using a common rating methodology rather than individual methods to arrive at ratings. He said such an approach would compromise their independence.

"In a global economy where we rate more than 120 sovereign governments, it is particularly important that rating methodologies not become subject to influence by one or more countries seeking to benefit its own rating, which would undermine the independence, comparability and value of ratings to all," Sharma said.

U.S. Credit Rating Rides on S&P’s London View of Politics on Capitol Hill
By Brian Faler - Jul 26, 2011 11:01 PM CT
Bloomberg

David Beers may be the most influential political commentator in the U.S. right now, even though he’s hardly a household name, that isn’t technically his job and he’s only visiting.

As the London-based managing director of sovereign credit ratings at Standard & Poor’s, Beers will help determine whether the U.S. government’s credit rating will be downgraded as a result of the battle over raising the debt limit.
The threat of a downgrade has made Standard & Poor’s a target for critics chafing at demands from a company that blessed the mortgage-backed securities that led to the financial crisis.


JULY 26, 2011, 5:05 P.M. ET
Ratings Agencies Views Pulled Squarely Into Debt Debate

NEW YORK (Dow Jones)--Ratings agencies have tried to stay above the fray in the ongoing debt drama in Washington, but whether they like it or not they are being dragged into it.

As the battle has raged ahead of an assumed Aug. 2 deadline to raise the U.S. borrowing limit, the three main agencies - Standard & Poor's, Moody's, and Fitch -- have repeatedly said their interest is in a long-term deficit reduction plan, not the details of how it is achieved. But with reports Tuesday suggesting that S&P favored a plan proposed by Sen. Harry Reid's (D-Nev.) over that pitched by House of Representatives Speaker John Boehner (R-Ohio), it's clear that their opinions are being politicized regardless.

To some extent, the rating agencies have created the scenario that ensures their role is politicized. Both S&P and Moody's put the U.S. government on review for possible downgrade as the debate moved closer to the Aug. 2 deadline, although Fitch said it saw no need to do so. That proactive move has been interpreted by observers as an effort by the agencies to show that they aren't going to be caught out with an overly lenient rating following the criticism that was lumped on them due to their failure to recognize the credit risks in mortgage assets before the 2008 financial crisis.

S&P has been the most aggressive. It has explicitly said even if the debt ceiling is raised, it could still cut the U.S. government's "AAA" rating if it is not accompanied by a sufficiently aggressive long-term deficit-reduction plan. In a report last week, S&P said a failure to reach a deal or raise the debt ceiling could lead to sharply higher interest rates, a steep drop in the value of the dollar and the possible need for a new bond-purchase program by the Federal Reserve.
Fed prepares for new approach on credit rating agencies