Wed, Aug 24, 2011 - Page 10 News List

S&P replaces president after US row

CONTROVERSY:S&P’s parent company, McGraw-Hill, is facing pressure to spin off the agency from shareholders who say political scrutiny hurts the firm’s other operations

Reuters, BANGALORE, INDIA, and NEW YORK

Standard & Poor’s (S&P) said its president is stepping down, capping two weeks of controversy following the rating agency’s downgrade of US government debt on Aug. 5 that sparked a row with the US Department of the Treasury.

S&P’s parent, McGraw-Hill Companies Inc, said yesterday Deven Sharma, who has served as S&P president since 2007, will be succeeded on Sept. 12 by Citibank chief operating officer Douglas Peterson.

“S&P will continue to produce ratings that are comparable, forward looking and transparent,” McGraw-Hill said in a statement, adding that Sharma would work on a strategic portfolio review for the group until leaving at year-end.

The one-notch downgrade of US government debt from “AAA,” which has not been matched by other major rating agencies, led to the biggest sell-off in global stock markets in three years and was criticized by US treasury officials and the administration of US President Barack Obama over some of the methodology used by S&P.

The US Department of Justice is also investigating the ratings agency over its actions in assigning high ratings to complex mortgage securities leading up to the 2008-2009 financial crisis, a source familiar with the matter said last week.

S&P management has been criticized for its handling of the downgrade, although some advocates said it was acting responsibly in light of mounting debt and Washington’s political inability to devise a long-term solution to the issue.

The Financial Times, which first reported Sharma’s resignation, quoted unnamed sources yesterday saying his departure was unrelated to the downgrade or the justice department investigation.

Executives and directors of McGraw-Hill are under increasing pressure from shareholders to restructure the publishing company and possibly spin off the profitable S&P ratings business.

At a board meeting on Monday, directors decided to replace Sharma and discussed an ongoing strategic review, the Financial Times said.

Directors and executives met with Jana Partners, a hedge fund, and the Ontario Teachers’ Pension Fund to hear their arguments on why the publishing company should be broken up.

Those shareholders, who publicly called for a possible restructuring of McGraw-Hill on Aug. 1, own 5.6 percent of the company, a bigger stake than that of chief executive Harold “Terry” McGraw III, the great-grandson of the company’s founder.

The activist shareholders urged directors on Monday to unwind the conglomerate and to appoint “an independent oversight figure” to help Standard & Poor’s navigate potential new regulation and public attention.

They said the recent controversy and political scrutiny highlight the drawbacks of having the S&P Ratings business coupled with McGraw-Hill’s unrelated operations.

S&P’s primary competitor, Moody’s Investors Service, was separated about 10 years ago from a mini-conglomerate then known as Dun & Bradstreet.

Some McGraw-Hill investors say the same should happen to S&P, in part because it would allow the agency to operate with virtually no debt and the freedom to issue critical ratings without undue fear of losing assignments from corporate issuers who pay for ratings.

CEO Terry McGraw, who turns 63 this month, has recently retreated from defending the company’s diverse portfolio of brands and made several executive changes.

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