S&P is overrated, says Duterte ally

Features Opinion & Analysis Oct 5, 2016 at 2:48 pm

Screen Shot 2016-10-05 at 10.23.05 AMDays after President Rodrigo Duterte said he does not care about Standard and Poor’s Financial Services LLC’s (S&P’s) assessment of his administration’s initial performance, a member of the Philippine Congress described the global credit rating agency as “somewhat overrated.”

“While S&P to a certain degree helps fund managers rationalize and feel good about their investments, what the agency has to say about the credit-worthiness of a government or a corporation is far from gospel truth,” Surigao del Sur Rep. Johnny Pimentel, a member of the House economic affairs committee, said.

“S&P’s international reputation is no longer the same as before the 2008 global financial crisis. Many investors today rely less on S&P when they decide where to put their money,” Pimentel said.

“I don’t care” was Duterte’s curt answer when he was asked by journalists to respond to S&P’s evaluation that “predictability in policy-making” – one of the considerations in making investment decisions – has diminished under his new administration.

S&P nonetheless affirmed the Philippines’ long-term credit rating of ‘BBB’ (lower medium, investment-grade) and short-term credit rating of ‘A-2’ (upper medium, investment-grade), with a stable outlook.

Pimentel said the New York-based debt watcher got discredited in a big way when it gave ‘AAA’ or prime investment grade ratings to U.S. housing mortgage bonds that turned out to be “junk” instruments of indebtedness.

In fact, he said S&P paid $1.5 billion last year to settle lawsuits with the U.S. Justice Department, more than a dozen U.S. states and the largest American pension fund, who accused the financial research firm of inflating its ratings on subprime mortgage bonds at the center of the 2008 global financial crisis.

Pimentel said there were also “glaring instances” in the past wherein S&P recommended certain shares of stocks of companies that later became bankrupt.

He cited the case of Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, which collapsed in 2008.

Lehman’s collapse hit three Philippine banks – BDO Unibank Inc., Metropolitan Bank and Trust Co., and Rizal Commercial Banking Corp., with a combined P7 billion in financial losses due to their direct and indirect exposures in the 158-year-old U.S. investment bank.

Two days before Lehman filed for bankruptcy (and before its shares became worthless), and while the company’s stock was trading at $4, S&P analysts told investors to hold on to their shares on expectations that the stock would rise to a target price of $14, according to Pimentel.

S&P, along with Moody’s Corp. and Fitch Ratings Inc., comprise the so-called “Big Three” global firms that calculate the abilities of governments and companies to pay their debt obligations.

(Press Release – Office of Rep. Johnny T. Pimentel, Philippine Congress)