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Saturday, December 20, 2008

RatingsRant: S&P Cover Themselves With... no. Not Glory...

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

I didn't mention this in Friday's USRant, but Friday marked another day of utter shame for the major ratings agencies.

Standard & Poors made it clear that they have finally figurred out that there is increased risk in the US financial sector, and Moody's cut Citigroup's rating (which is still in the 'A's even though C was within days of being bankrupt just ten days ago). S&P downgraded the bonds of no less than 12 US banks - the average price fall in the stocks of these banks is of the orer of 75% from their respective highs. 

Heckuva job, S&P.

The current bunch of major ratings agencies really are worthless, gutless, hopeless and useless.

What is the point of paying attention the their ratings when they are so utterly, hopelessly behind the curve? (I leave it to you, dear Reader, to find out what the average S&P/Moody's/Fitch rating was on Lehman debt just before Lehman went toes-up).

The only thing that Moody's/S&P/Fitch are good for is a delayed news feed: they downgrade bonds well after the bonds are at discounts to face value that already reflect the lower rating; the added bonus is that if a bond-issuer has gone out of business, it will show up in the rating within a month.

In summary, you get more information from yesterday's newpapers than you do from the 'forward looking' ratings agencies. The output of S&P/Moody's/Fitch is worth less than stock analysis performed by sell-side analysts. You might have thought such a thing was impossible.