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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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June 16, 2008 12:01 AM ET
The Securities and Exchange Commission is poised to approve rules to tighten oversight of credit rating agencies, including a controversial plan to create a different rating system for complex securities that is opposed by a Republican commissioner and a Wall Street group, according to several observers. The proposal also would address the firms' conflict of interest by banning them from rating securities they help issuers design. Issuers pay the firms for their ratings. One reason the rules appear likely be approved: The commissioner who opposed the rating system plan, Paul Atkins, has announced his retirement and will probably be gone by the time the rules are considered, said Columbia University law professor John Coffee and Georgetown University law professor James Angel. Another reason is that the broad criticism of rating agencies such as Standard & Poor's and Moody's Investors Service for failing to identify risks in subprime mortgage investments has created pressure on the SEC to act, the professors said. “The rules should be easily adopted,'' Mr. Coffee said. The SEC proposed rules last Wednesday to require more disclosure about ratings and methods by the $5 billion-a-year credit rating industry, which includes nine firms, in an attempt to foster competition. They also seek to curb some conflicts of interest among the firms. The most controversial proposal would require the firms to flag complex securities backed by mortgages, car loans, student loans and credit cards to make clear to investors that these instruments are higher risk than conventional corporate or mortgage bonds. Firms would have a choice of using different symbols, such as asterisks instead of letters, or of filing reports each time they make a rating or rating update. SEC staff estimated that this proposal would cost about $130 million a year if reports rather than symbols were used. The estimate was based on the premise that firms issue more than half a million ratings and updates on asset-backed securities. “Staff estimates tend to be on the high side,” SEC chairman Christopher Cox said in an interview. SEC financial economist Lori Walsh, who disclosed the staff estimate in an interview, also said separately it may be a bit high. Mr. Cox and the two other commissioners, all Republicans, voted unanimously to issue the disclosure and conflict-of-interest proposals for public comment. Mr. Atkins opposed seeking comment on the differential rating system. After public comments are in, the commission will consider which rules to approve. “Unless there's strong pushback and a bunch of people say the differential rating systems will muck up the market, the proposals will all go through,” Mr. Angel said. A Wall Street lobbying group endorsed the commission's proposals on disclosure and conflict of interest, while criticizing the dual-ratings plan. Dual ratings could “impair capital raising” for mortgages and other loans and “lead to the sudden sale of structured finance securities at fire-sale prices into an already highly illiquid market,” the Securities Industry and Financial Markets Association, which represents hundreds of Wall Street firms, said in a statement. Spokesmen for the three largest credit rating agencies, Standard & Poor's, Moody's and Fitch Ratings, expressed general support for the SEC proposal while declining comment on the dual-ratings plan. Mr. Atkins echoed the Wall Street group's concerns while also citing the proposal's “shiny but costly veneer” in opposing issuance of the plan. Mr. Atkins has said he will leave the commission once the three Bush administration appointees are approved by the Senate. Republican Troy Paredes and Democrats Elisse Walter and Luis Aguilar testified before the Senate Banking Committee earlier this month. “I think the Democrats will have no problem with this proposal,” Mr. Coffee said. And Mr. Paredes “may not want to cross the chairman on his first vote,” assuming Mr. Cox continues to support the proposals, he added.
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