Boston, MA 02/15/2013 (wallstreetpr) – McGraw-Hill Companies (NYSE:MHP) the owner and publisher of S&P500 ratings received a two level downgrade in ratings from its arch rivals Moody’s Corporation (NYSE:MCO) and Fitch Inc. A week earlier the US department of justice has filed a lawsuit against the largest rating agency in the US saying it defrauded the market by issuing erroneous ratings; the government seeks as much as $500 million in damages.
Last week, the justice department alleged that the rating company had rated residential mortgage backed securities and collateralize debt obligations valuing over $2.8 trillion and $1.2 trillion respectively during the three years ending October 2007. As the home market bolstered more borrowers defaulted in causing a decline in the value of the mortgage linked securities. Continual defaults from risky borrowers paved the way for a credit seizure which finally culminated into the worst fiscal crises in the history of the US after 1993.
The justice department took notice of the irregularities when the resulting losses went as high as $2.1 trillion under the Dodd-Frank Act of 2010. However, the preliminary investigations by Financial crisis inquiry commission and the Senate’s Investigation sub-committee, revealed that McGraw-Hill Companies (NYSE:MHP) was not the only one to blame for the mess.
Moody’s Corporation (NYSE:MCO) downgraded the rating to Baa2, just 2 ranks above speculative grade today. S&P holds a BBB+ rating for Moody’s Corporation (NYSE:MCO) i.e 3 ranks above a speculative grade. Fitch had already downgraded the debt rating by 1 level to a BBB+ from an A- on February 7th, citing there is a potential for further lawsuits.
Ayako sera a strategist at Sumitomo Mitsui Trust Bank Ltd. Said, “ratings companies are eating each other”. The damages sought by the governments tantamount to five years’ profits. Jim Reid, a Moody’s analyst terms the Moody’s downgrade as a “touch of irony” in his note to the clients.
The company is already all set to sell off its educational unit which move signals it is committed to expand high margin business and skim the cash cow in the short term. Its stock buybacks and the cash injection from the sale out of educational unit will boost the net cash balance.
Reports from the U.S. Senate Permanent Subcommittee on Investigations and the Financial Crisis Inquiry Commission cited failures by S&P, Moody’s and Fitch Ratings as a cause of the financial crisis, which began in August 2007. Moody’s Corporation (NYSE:MCO) and Fitch ratings Inc, the third largest credit rating in the world were also responsible, reports reveal. The company’s shares degraded to
McGraw-Hill Companies (NYSE:MHP) shares were down by 0.09% and currently trading at $44.82. Moody’s Corporation (NYSE:MCO) shares were up 0.62% and currently trading at $46.77.
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