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Opinion

S&P: Talk the talk, walk the walk

In May the agency announced that its new super-cautious approach would result in the shock downgrade of nearly 90% of all outstanding triple-A CMBS in the US. But the problem with talking the talk is that you need to walk the walk

When the world fell apart in mid-2007, it did not take long for press and public to point their fingers at the rating agencies and bay for blood. These firms have therefore spent the past two years frantically reassessing how they look at credit risk and protesting their innocence of any wrongdoing (‘A rating is just an opinion! Investors should do their own due diligence!’). Two years down the line these firms are now hoping that the new methodologies that they have so painstakingly constructed, together with the passage of time, might have gone some way towards restoring their credibility. "Today, S&P is a very different place than it was two years ago," claimed the firm’s president, Deven Sharma, recently.

But not that different. In May the agency announced that its new super-cautious approach would result in the shock downgrade of nearly 90% of all outstanding triple-A CMBS in the US. But the problem with talking the talk is that you need to walk the walk. The predictable fury that ensued when the downgrades actually took place in July led S&P to backtrack furiously and upgrade a series of downgraded bonds back up to triple-A just a week later.

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