Rating agencies are paid agents - Think tanks
A recent lawsuit against rating agency, Standard and Poors has sparked a wave of criticism by local analysts and economists on the integrity of these agencies. Suleiman Mustapha reports.
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A one-billion dollar lawsuit against rating agency Standard and Poor’s (S&P) in the USA has sparked renewed debate about the firm’s integrity in previous ratings of Ghana.
The US government has sued S&P for fraud for deliberately inflating its ratings on hundreds of billions of dollars' worth of securities, and by delaying downgrades even when it knew the quality of those assets were "severely impaired."
S&P has acknowledged that its AAA ratings on many mortgage-related securities turned out to be wrong, but denies committing fraud.
This, has however, triggered fresh argument in Ghana about the integrity of data used by the rating agency in its previous ratings of the country.
An economist and Executive Director of the Centre for Policy Analysis (CEPA), Dr Joe Abbey, has in a telephone interview re-echoed his distrust for the rating agency.
According to him, credit rating agencies such as S&P could be manipulated to serve a particular interest. “They cannot always be objective because they are also interested in promoting their country”, he said.
He said the problems posed by some of these rating agencies had led to the European Union (EU) considering promoting their own rating agencies and these should inform everyone of what to make of their findings.
“Standard and Poor’s can sometimes influence international market against our country by doing a poor job, so we have to be very careful”, he said.
He cautioned the government to be careful in releasing the country’s economic data to the international rating agencies, including the IMF.
“They could be paid agents of some multinationals to manipulate data to influence investors against the country”, he noted.
He tasked policy makers to be very objective in the management of the economy so that they could be seen as credible by the international community.
Another economist and Head of Databank Research, Sampson Akligoh, has also in an interview advocated for a rethink of the continuous reliance of the grading systems of S&P and other international rating agencies.
According to him, policy makers should rely more on the local expertise to assess the performance of the economy.
“It is good to have a second opinion but it is always good to rely on local expertise because most of the time those international agencies rely on local expertise for their intelligence data gathering”, he
said.
A financial analyst and lecturer at the School of Business, University of Cape Coast (UCC), Mr John Gatsi, was even more dismissive of S&P and called for a more rigorous appraisal of the rating agency by a national regulatory agency.
Mr Gatsi called for the establishment of a local credit rating of Ghana that will be supervised by the national regulator to ensure a proper assessment of the country’s credit worthiness.
According to him, rating agencies are susceptible to manipulation, adding that “the accounting and financial scandals of early 2000 and the lessons from the recent global financial crisis indicated that credit rating agencies are highly subjective and could be lobbied”, stating further that “European Union states have set up a strong body to supervise the rating agencies as a result”.
Standard & Poors currently is facing a lawsuit over bogus ratings in Australia in a US$40-million action by a local government superannuation investor over an AAA-rated debt investment that subsequently turned toxic during the financial crisis.
It would be recalled that in 2010, S&P downgraded Ghana from ‘B+’ to ‘B’ in its sovereign rating, which sparked a wave of condemnation from leading economists and analysts, who exposed the fraud in the rating agency’s grading of Ghana.
Razia Khan, Head of Macroeconomics and Research, Africa for Standard Chartered Bank, based in London, has said that “the citing of moves by the government to interfere with the sale of privately owned oil assets' (by Standard & Poor’s in its rating of Ghana) “suggests that other factors - not directly related to Ghana's creditworthiness - may have been significant in the decision.”
Promising to make available a more in-depth examination of the factors influencing Ghana's rating, Ms Khan said even though Ghana faced challenges, “things are at least moving in the right direction.”
Razia Khan, an international economist, who is widely consulted on the continent’s development issues, said in a release that “while Ghana does have its fiscal issues, we note that none of these is new news - and on balance, fundamentals in Ghana have been improving, not getting worse.”
She continued that “from this perspective, it is difficult to justify the ratings action now,” which situation is made worse by the obvious reference to the Kosmos Energy attempt to sell its assets in Ghana’s oil fields.
For Dr. Nii Moi Thompson, the figures attributed to Ghana by S&P in its analysis are sharply different from the actual official projections of 4.5 per cent and 3.5 per cent for 2011 and 2012 respectively, and 8.0 per cent for 2010.
“One can only conclude that, like the Wall Street Journal, Forbes, and the Washington Times, S&P has also fallen under the manipulative spell of Kosmos-Exxon and their array of relentless operatives.
Bear in mind that the government's action on Kosmos' intended sale of its shares to Exxon’s had been anything but arbitrary,” emphasised Nii Moi.
According to the Financial Times of London Standard & Poor’s has been accused by the US justice department of defrauding investors in mortgage-related securities out of at least US$5bn by issuing inflated ratings to win hundreds of millions of dollars in fees.
The February 5 edition of the paper says that the shares in McGraw-Hill, the credit rating agency’s parent, also named as a defendant, have fallen 23 per cent since the lawsuit was first revealed on Monday February 4. The 128-page civil lawsuit is the first against a credit rating agency.
“Put simply, this alleged conduct is egregious – and it goes to the very heart of the recent financial crisis,” said Eric Holder, US Attorney-General, in announcing the charges.
The Department of Justice (DoJ) also alleges S&P falsely represented to investors, including Western Federal Corporate Credit Union, Citibank and Bank of America, that its ratings were objective when instead they were influenced by a desire to win fees and market share.
Mr Holder was joined by attorneys-general from Connecticut, California, Delaware, Mississippi, Illinois, Iowa and the District of Columbia. So far, 16 states and the District of Columbia have filed lawsuits against S&P. California said it filed a suit on behalf of Calpers, the largest US public pension fund.
The lawsuit claims that from 2004 until 2007 S&P had “adjusted and delayed” updates to its rating criteria and models. It ignored warnings from its own analysts about the weakening housing market to churn out triple A ratings – the highest – on mortgage-related securities, including collateralised debt obligations.
“S&P’s desire for increased revenue and market share ... and its resulting desire to maintain and enhance its relationships with issuers that drove its ratings business, improperly influenced S&P to downplay and disregard the true extent of the credit risks,” the lawsuit alleges.
Story by Suleiman Mustapha