Tags: Apple, Harvard, Headline roundup; Moody's, Ratings, retailers, TARP, UBS
Were it not for an economy in shambles, it would seem unthinkable for Berkshire Hathaway to be rated anything but AAA. But Even Berkshire isn't looking as invinvible as it has always seemed, and guiding light Warren Buffett isn't getting any younger. And with that, Fitch lowered the company's default rating to AA+, and it now rates the company's senior unsecured debt at AA. The insurance and reinsurance units are still rated AAA but with a negative outlook. Berkshire joins GE in losing its AAA; earlier in the day S&P cut GE's rating to AA+.
Tags: Ratings
Charlie Rose spoke to Pershing Square Capital's Bill Ackman on Nov 11 (last night). It's a great interview — he talks about the state of hedge funds, GM, credit default swaps, the rating agencies, the short selling ban, FNM/FRE, etc.
Tags: Activist Investing, Bill Ackman, Credit Crunch, Credit default swaps, Fannie Mae / Freddie Mac, GM, Hedge funds, Ratings
As if they don’t have enough problems, Moody’s may be looking to downgrade Morgan Stanley and Goldman’s long term debt ratings:
The rating agency said it had placed
Morgan Stanley’s A1 rating on review for a downgrade while assigning a negative
outlook to the Goldman Sachs Aa3 rating.Just ahead of the Moody’s announcement, Mitsubishi UFJ Financial Group, Japan’s
largest bank, said it had no plans to pull out of a planned $9 billion
investment in Morgan Stanley despite the Wall Street bank’s shares losing a
quarter of their value on Thursday alone.
Moody’s says may cut Morgan Stanley, Goldman ratings – Reuters
Tags: Goldman Sachs, Morgan Stanley, Ratings
S&P is warning that debt of the NY Times could be downgraded to junk level. On Wednesday, the Times reported poor numbers, including an 82% decline in earnings on a 6% drop in revenues. According to the WSJ:
"The CreditWatch listing reflects an
accelerating pace of total revenue decline and a rate of decline in EBITDA in
the first half of 2008 that indicates the company may have difficulty achieving
our expectations for the current rating," explained Standard & Poor’s
credit analyst Emile Courtney."This is notwithstanding our
understanding that The New York Times is attempting to lower its cost base by
more than $130 million in 2008."
New York Times May Face Junk Rating, S&P Warns – Wall Street Journal
We’ve never had much use for the rating agencies, because they’ve always seemed so hopelessly behind the curve. Day by day, they’ve continued to prove us right about their uselessness: Moody’s is now done with its internal investigation of that little problem that they announced back in May — that they had assigned a bunch of Aaa ratings to paper that actually should be rated as crap. The original party line was that computers may have generated the ratings errors. Turns out that it wasn’t, and it was human error and breaches of Moody’s internal rules. The head of Moody’s structured finance unit is now history. Warren Buffett’s Berkshire Hathaway owns 19.6% of Moody’s — it probably won’t go down in history as being one of his better investments…..
Tags: Credit Crunch, Ratings
It’s ratings war: S&P, the largest rating company, may cut the commercial paper of its arch rival, Moody’s.
S&P today placed Moody’s A-1 short-term
debt rating on CreditWatch negative, citing reports that a computer error may
have caused Moody’s to give Aaa ratings to debt that didn’t deserve them.Moody’s shares tumbled 21 percent in the
past two days after the New York-based company said it is probing whether
executives covered up a computer error that gave undeserved top ratings to
constant proportion debt obligations, funds that used borrowed money to bet on
credit-default swaps. S&P analysts also awarded AAA ratings to the CPDOs.In putting Moody’s rating under review,
S&P cited broader declines in revenue that have affected both companies
since the collapse of the subprime home loan market sapped new issues of
mortgage-backed bonds and collateralized debt obligations, which package pools
of debt into new securities.
Moody’s Commercial Paper Rating May Be Cut, S&P Says – Bloomberg
Tags: Ratings
If it weren’t so pathetic it would almost be funny: Moody’s fuck-up supreme: They somehow kinda sorta assigned AAA ratings to a bunch of CPDOs that should have been rated far lower. They’re conducting “a thorough review” to see if a computer error was the culprit. The kicker is that some senior Moody’s staffers knew about the screw up since 2007 but kinda neglected to pass that info on. We’ve pretty much always never had much use for the rating agencies, since they were always so far behind the curve. Now we even have less use for them. Bring on the lawyers…
Some senior staff at Moody’s were aware in
early 2007 that constant proportion debt obligations, funds that used borrowed
money to bet on credit-default swaps, should have been ranked four levels lower,
the Financial Times said, citing internal Moody’s documents. Moody’s altered
some assumptions to avoid having to assign lower grades after it corrected the
error, the paper said.The allegations raise questions about
internal controls at credit ratings firms as they face scrutiny from lawmakers
and regulators for assigning their top grades to securities derived from loans
to people with poor credit. U.S. Senate Banking Committee Chairman Christopher
Dodd has flagged the potential conflict of interest between ratings firms and
the banks that pay their fees, while the Securities and Exchange Commission is
probing the way ratings are assigned.“If it is true, does that mean other
products haven’t been rated correctly?” said Puneet Sharma, Barclays Capital’s
head of investment-grade credit strategy in London. “Will they be downgraded?
It could lead to turmoil.”“The integrity of our ratings and rating
methodologies is extremely important to us, and we take seriously the questions
raised about European CPDOs,” New York-based Moody’s said in an e-mailed
statement. “We are therefore conducting a thorough review of this matter.”.
Uh-huh.
Moody’s Begins Probe on Report Bug Caused Aaa Grades – Bloomberg
Tags: Ratings
When the markets were closed for Good Friday, S&P was busy cutting their debt ratings outlook for both Goldman Sachs and Lehman Brothers as they believe that earnings will fall as much as 30%….
“Our current expectation is that net
revenue could decline” at least 20 percent for independent securities firms,
S&P said in a statement today. S&P affirmed its long-term credit rating
of AA- for Goldman and A+ for Lehman. Both companies are based in New York.The Federal Reserve’s decision last week to
open a lending facility for brokers and provide financial support for JPMorgan
Chase & Co.’s emergency takeover of Bear Stearns Cos. “mitigates liquidity
concerns,” S&P said. “Nonetheless, we see some possibility, were there to
be persisting capital markets turmoil and sharply weakening economic conditions,
that financial performance could deteriorate significantly.”
Tags: Goldman Sachs, Lehman Brothers, Ratings
S&P cut Bear Stearns’ counterparty
credit rating three notches to "BBB," the second-lowest investment
grade, from "A." It also cut Bear’s senior unsecured debt to the same
level, and cut its preferred stock rating to "BB-plus," one level
below investment grade.Counterparty credit ratings reflect how
well a company can meet its financial obligations with customers, trading
partners or other parties."The ratings are based on our
expectation that Bear will find an orderly solution to its funding
problems," S&P said in a statement. "However, although we view the
liquidity support to Bear as positive, we consider it a short-term solution to a
longer term issue that does not entirely affect Bear’s confidence crisis.""We also remain concerned about Bear’s
ability to generate sustainable revenues in an ongoing volatile market
environment," S&P said. "The ratings could be lowered further if
there is a failure to stabilize liquidity or to achieve a satisfactory longer
term funding structure."
S&P cuts Bear Stearns on cash crunch, may cut again – Reuters
Tags: Bear Stearns, Credit Crunch, Ratings
On Monday Moody’s proposed changes to its rating system — which may even come with a warning label. Now it’s S&P’s turn:
The agency will pledge to overhaul the way
it measures the riskiness of securities, step up investor education and reduce
potential conflicts of interest by taking steps such as rotating analysts around
beats.The move comes as the other two leading
rating agencies – Moody’s and Fitch – overhaul their procedures in the
wake of the credit turmoil, which has forced the three agencies to downgrade
tens of thousands of securities in recent weeks.These downgrades have come as a shock for
investors, since many involve securities that previously carried the top-notch,
ultra-safe “triple A” tag. This, in turn, is now fuelling political pressure
for American and European regulators to tighten oversight of the agencies, which
are only subject to light regulation.
Tags: Credit Crunch, Ratings
But it sounds like what they want to replace it with isn’t a whole lot better. The new ratings might even come with a warning — like cigarettes.
Moody’s moved on on Monday to respond to
its critics by proposing a new rating system for complex debt securities that
would rely on numbers rather than letters.However, the new system would involve the same number of grades – 21 – that
spurred some industry executives to ask whether it would confuse investors.More broadly, the ratings firm is trying to decide whether to add warning labels that essentially acknowledge the limitations of its ratings.
"We’ve been taking a hard look at the things we do," said Richard Cantor, a managing director at Moody’s who co-wrote the four-page report released yesterday in which the ratings firm announced the possible changes.
Tags: Ratings
It didn’t help that late in the day S&P was cutting / considering cutting the ratings of $534 billion of sub-prime debt….
Tags: Charts, Credit Crunch, Fed, Ratings
The hedge funds we’ve all heard about that went short aren’t the only beneficiaries of the financial meltdown. Lawyers are sure to be huge beneficiaries as well. The Daily Telegraph points out that 49 companies have been sued so far in the credit crisis and that number is sure to multiply. Among them, Moodys and S&P have bee sued by shareholders:
Action has been taken against Robert Bahash,
the executive vice president and chief financial officer of The McGraw-Hill
Companies, which owns S&P, and Linda Huber, the chief financial officer of
Moodys Corporation.The cases are being brought by shareholders, including pension and annuity
funds. They claim Mr Bahash and Ms Huber "misrepresented or failed to
disclose" that their ratings agencies "assigned excessively high
ratings to bonds backed by risky sub-prime mortgages – including bonds packaged
as collateralised debt obligations (CDOs)".The suits go on to allege that this was "materially misleading to investors
concerning the quality and relative risk of these investments". The writs
claim they failed to downgrade the bonds "even as a downturn in the housing
market caused rising delinquencies of the subprime mortgages underlying such
bonds".
Shareholdersact against ratings agencies - Daily Telegraph
Tags: Credit Crunch, Lawsuit, Lawyers, Ratings
Did banks and other debt issuers pressure rating agencies to give sub-prime bonds higher ratings than they deserved? The SEC aims to find out:
The SEC, led by chairman Christopher Cox,
revealed it is looking in to whether agencies such as Moody’s and Standard &
Poor’s were "unduly influenced" by banks who paid for credit ratings.The revelation by Mr Cox during testimony before the Senate Banking Committee is
the clearest indication to date that regulators believe sub-prime mortgage bonds
were unduly inflated in return for payment.The news will send shivers among both the
banking and ratings fraternity, as the SEC is all-powerful in the world of
securities regulation, and will come down hard on any institutions found to have
broken the rules.SEC to investigate ratings agencies – Daily Telegraph
Tags: Banks, bonds, Credit Crunch, Ratings
The next big wave in corporate defaults could come in 2008 with some $35 billion in debt defaults according to Standard & Poors. And that amount could be conservative:
The amount of debt on which U.S. companies
fail to make interest payments could soar to $35 billion by the end of 2008 as
higher borrowing costs and wary investors limit access to credit, Standard &
Poor’s said.Companies rated B or lower by the New
York-based ratings company could default on $35 billion in debt during the next
15 months, up from $4.5 billion so far this year, according to an S&P report
published today.“These companies are highly reliant on
financial market access to support operational cash needs, but the plentiful
liquidity for high-yield borrowers is almost surely a thing of the past,”
S&P analysts led by Paul Coughlin said in the report. “Over the coming
year, there are some risks of a protracted economic slump, a sustained rise in
borrowing costs and the inability to satisfactorily execute planned asset
sales.”
Tags: bonds, Distressed, Ratings
The latest subprime victim: Standard and Poor’s president Kathleen Corbet has resigned / been shown the door as criticism grows over that company’s role in the subprime meltdown. Devin Sharma is her replacement:
McGraw-Hill Cos., the parent of Standard
& Poor’s, said in a statement yesterday that Corbet, 47, resigned to spend
more time with her family. Her exit isn’t related to the current credit- market
turmoil, Steven Weiss, a New York-based spokesman for the company, said in an
interview. Sharma, 51, is executive vice president of investment services and
global sales.
Tags: Credit Crunch, Ratings, Revolving Door
From Briefing.com:
Follow up on Moody’s
comments regarding possible hedge fund collapsesAs mentioned at 10:26, DJ reported that Analysts at Moody’s
Investors Service warned Thursday that the credit crunch roiling global markets
has the potential to cause the collapse of a major hedge fund that could further
disrupt markets. As investors try to unload illiquid investments such as
collateralized debt obligations, hedge funds that are unable to exit their
positions could run into trouble, Chris Mahoney, vice chairman of Moody’s, said
during a conference call with investors. The result could be the "failure
and disorderly liquidation of a hedge fund of sufficient size to disrupt markets
as (Long Term Capital Management) threatened to do," he said during the
call. Mahoney said the risk of such hedge fund failures will exist for the next
three to six months.
Tags: Hedge funds, Market chatter, Ratings
to Baa3 from A3. Its ratings remain on review
Tags: Ratings
We’ve never had much use for rating firms. Rather than proactively changing ratings before any damage is done, they’re usually late to move. The Wall Street Journal provides more reason to think that the rating firms have little use — they contend that the agencies were instrumental in fueling the subprime mess:
In 2000, Standard & Poor’s made a
decision about an arcane corner of the mortgage market. It said a type of
mortgage that involves a "piggyback," where borrowers simultaneously
take out a second loan for the down payment, was no more likely to default than
a standard mortgage.While its pronouncement went unnoticed outside the mortgage world, piggybacks
soon were part of a movement that transformed America’s home-loan industry: a
boom in "subprime" mortgages taken out by buyers with weak credit.
Tags: Ratings
Bear seems to have a new scapegoat: It seems that there’s only room for one senior Bear Stearns executive to be off playing bridge as the firm tries to put out the many forest fires that have sprung up within its kingdom. CEO Jimmy Cayne was sometimes off playing golf and bridge as the news of the implosion of two of its subprime funds spread last month. Now it appears that Bear Stearns President Warren Spector was also off playing bridge too, according to the New York Post. And it might, at least in part, be a reason that it’s costing him his job. It’s coming on the heels of Bear Stearns’ conference call response to S&P’s reducing the firms credit outlook (although its ratings were affirmed). During the call, Bear Stearns CFO Sam Molinaro disclosed that its July results would awful. Cayne made the opening remarks on the conference call, but didn’t stick around for the rest. (Golf game calling, perhaps?) And the stock price in turn responded, sliding to $108.35 at the close…..
Tags: Bear Stearns, Charts, Jim Cayne, Ratings, Revolving Door
Oooogly: S&P affirmed Bear Stearns ratings this morning, but revised their outlook to negative, citing the potential for legal and reputational risk associated with their subprime mess. The stock is dropping like a rock on the news.
Recent developments, including problems at some of Bear Stearns’ managed hedge funds, have the potential to hurt the company’s performance for an "extended period," S&P said.
It currently rates Bear Stearns "A-plus," the fifth-highest investment grade rating.
"We believe Bear Stearns’ reputation has suffered from the widely publicized problems of its managed hedge funds, leaving the company a potential target of litigation from investors who have suffered substantial losses," S&P said in a statement.
Bear Stearns outlook now negative, was stable -S&P – Reuters
Tags: Bear Stearns, Charts, Jim Cayne, Lawsuit, Legal, Ratings
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Tags: bonds, CDO, Emerging Markets, Henry Paulson, Private equity, Ratings
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