S.&.P. Announces $1.37 Billion Settlement With Prosecutors By BEN PROTESS FEBRUARY 3, 2015 8:40 AM February 3, 2015 8:40 am 84 Comments s Documents: S.&P. Fraud Inquiry Updated, 10:08 a.m. | Nearly a decade after credit rating agencies fed a subprime mortgage frenzy that imperiled the global economy, one of the industry’s biggest players now faces a costly reckoning.
Standard & Poor’s, a rating agency accused of inflating its assessment of mortgage investments that spurred the 2008 financial crisis, said on Tuesday that it had agreed to pay $1.37 billion to settle wide-ranging civil charges from the Justice Department as well as 19 state attorneys general and the District of Columbia. S.&P. also signed a statement of facts that outlined its role in the mortgage crisis, but the ratings agency did not admit to wrongdoing, securing a major concession from the government.
The settlement, which does not require judicial approval, all but closes the book on one of the government’s signature Wall Street cases. The Justice Department sued S.&P. two years ago this week, setting in motion a wave of lawsuits from states across the country.
The government’s decision to settle signals that its pursuit of crisis-era misdeeds has entered a final stage. The settlement of the S.&P. case, coming on the heels of banks and other financial firms collectively paying more than $40 billion to end federal and state investigations, was among the government’s few remaining items of unfinished business from the crisis.
“The settlement we have reached today not only makes clear that this kind of conduct will never be tolerated by the Department of Justice – it also underscores our strong and ongoing commitment to pursue any company or entity that violated the law and contributed to the financial crisis of 2008.” Attorney General Eric H. Holder Jr. said at a news conference Tuesday. As for S.&P., he said that “on more than one occasion, the company’s leadership ignored senior analysts who warned that the company had given top ratings to financial products that were failing to perform as advertised.”
Video PLAY VIDEO|1:03 Holder on Standard & Poor’s Settlement Holder on Standard & Poor’s Settlement Attorney General Eric H. Holder Jr. said that Standard & Poor’s was paying almost $1.4 billion after it admitted to conduct that contributed to the 2008 financial crisis. Video by Associated Press on Publish Date February 3, 2015. Photo by Yuri Gripas/Reuters. In its own statement, S.&P. said that “after careful consideration, the company determined that entering into the settlement agreement is in the best interests of the company and its shareholders and is pleased to resolve these matters.”
In a separate settlement also announced on Tuesday, S.&P. agreed to pay the California Public Employees’ Retirement System, the large public pension fund, $125 million to resolve claims over ratings of three investment deals. Like the Justice Department case, the terms of the Calpers settlement are not subject to judicial approval.
For S.&P., the battery of settlements provides some peace to a process rife with animosity. After years of low offers and sharp-tongued barbs — S.&P. claimed the Justice Department’s case amounted to “retaliation” after it cut the stellar AAA credit rating of the United States years earlier — it was unclear whether the rating agency would ever back down.
But in the statement of facts, S.&P. acknowledged that “the voluminous discovery provided to S.&P. by the United States to date” does not “support its allegation” that the Justice Department had acted out of spite.
It agreed to withdraw that allegation in court, a surprising about-face for S.&P. Yet the ratings agency did not address in the statement of facts whether additional evidence would have yielded a different conclusion.
The $1.37 billion penalty, like the statement of facts, is the product of compromise.
The penalty, half of which is earmarked for the federal government and the rest for the states, is large enough to wipe out S.&P.’s operating profit for a year, and is three times what S.&P. originally offered to settle before the Justice Department filed its lawsuit. But it also falls far short of the $3.2 billion that the government demanded after S.&P. initially refused to settle.
S.&P.’s decision to fight the Justice Department’s case caught Wall Street and Washington by surprise. It is one thing to challenge, and defeat, a private lawsuit. But nearly every financial institution that faces a Justice Department lawsuit eventually breaks down and settles, fearing that a courtroom fight might antagonize the government and unnerve shareholders.
Such outcomes — $1 billion is now a floor rather than a ceiling for a settlement — have led Wall Street lawyers to criticize what they call a government shakedown. And yet, some lawmakers and consumer advocates complain that the civil lawsuits are little more than a slap on the wrist for companies that helped ignite the worst financial crisis since the Great Depression. Not one top executive at S.&P., or any major Wall Street firm for that matter, was charged criminally for the misdeeds during the era.
From the onset of the crisis in 2007, lawmakers and investigators pinned blame on the rating agencies. A federal commission that investigated the crisis described the rating agencies as “essential cogs in the wheel of financial destruction.”
The accusations centered on the role that rating agencies like S.&P., a unit of McGraw Hill Financial, played in the subprime mortgage market. In the run-up to the crisis, Wall Street’s mortgage machine hummed: Lenders churned out mortgages to families with checkered credit histories; banks bundled the mortgage into securities to sell to investors; rating agencies, bending to the will of the banks, awarded generous grades to the securities, inflating the mortgage bubble to a point of no return.
In subsequent lawsuits against S.&P., state attorneys general and the Justice Department argued that the process went too far. Citing a series of errant emails that provide a glimpse inside S.&P. on the eve of the mortgage bubble bursting, the government agencies portray a company that ignored signs of a looming disaster to pump up its profits.
In one March 2007 email, an S.&P. analyst parodied the Talking Heads song “Burning Down the House,” adapting the lyrics to fit the mortgage bubble: “Subprime is boi-ling o-ver. Bringing down the house.”
At the news conference Tuesday, Mr. Holder took aim at the profit-driven strategy.
“As S.&P. admits under this settlement, company executives complained that the company declined to downgrade underperforming assets because it was worried that doing so would hurt the company’s business,” he said. “While this strategy may have helped S.&P. avoid disappointing its clients, it did major harm to the larger economy, contributing to the worst financial crisis since the Great Depression.”
The Justice Department’s lawsuit argued that the rating agency had a conflict of interest, because the banks that created the mortgage investments paid S.&P. to rate the deals. That conflict “improperly influenced” the ratings criteria, the Justice Department said. It also accused S.&P. of falsely claiming that its ratings “were objective, independent, uninfluenced by any conflicts of interest.”
“In effect, S&P considered its own business interests, contrary to its public statements that its ratings were objective,” said George Jepsen, the Connecticut attorney general, one of the first to sue S.&P. “These actions had a very direct and serious impact on our national economy that is still being felt in communities and households in Connecticut and across our country.”
S.&P. argued that its claims of objectivity were mere “puffery,” akin to corporate marketing, and could not be taken seriously. The ratings agency called the Justice Department’s lawsuit “meritless” and vowed to fight it “vigorously.”
That fight turned hostile when S.&P. claimed in a legal filing that prosecutors “commenced this action in retaliation” for the rating agency’s 2011 downgrade of the United States credit rating. And it sought to impugn Timothy F. Geithner, the Treasury secretary at the time of the downgrade, saying he called a McGraw Hill executive to warn that S.&P.’s conduct would be “looked at very carefully.”
At the time, a spokeswoman for Mr. Geithner said that “the allegation that former Secretary Geithner threatened or took any action to prompt retaliatory government action against S.&P. is false.”
Last year, both sides softened their stance. The rating agency’s lawyers met with state and federal authorities, drawing up the contours of a settlement.
The ensuing deal, announced on Tuesday, represents a central plank in a broader strategy shift at S.&P: forgoing costly litigation to make peace with the government.
Last month, S.&P. settled an unrelated case with the Securities and Exchange Commission as well as state attorneys general in New York and Massachusetts, paying nearly $80 million for accusations that it misled the public about its approach to rating certain commercial mortgage investments.
The settlement mentality reflects a change atop McGraw Hill’s legal department, which recently installed a new general counsel, Lucy Fato, formerly a partner at the law firm Davis Polk. Ms. Fato has led many of the negotiations in the settlement with the Justice Department and state attorneys general.
The settlement with the Justice Department captured that push. Both sides, the agreement said, settled “to avoid the delay, uncertainty, inconvenience, and expense of further litigation.”
...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......
The replacement of morality and conscience with law produces a deadly paradox.
STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS
Rating Action: Moody's downgrades to A3 from A1 the City of Schenectady's (NY) general obligation bonds; negative outlook assigned Global Credit Research - 26 Sep 2012 A3 rating applies to $34.6 million of outstanding rated debt New York, September 26, 2012 -- Moody's Investors Service has downgraded to A3 from A1 the underlying rating on the City of Schenectady's (NY) $34.6 million of outstanding general obligation debt. Concurrently, Moody's has assigned a negative outlook. The bonds are secured by the city's general obligation pledge as limited by the Property Tax Cap-Legislation (Chapter 97 (Part A) of the Laws of the State of New York, 2011).
RATINGS RATIONALE
The downgrade reflects the city's declining financial position, which is expected to deteriorate further in fiscal 2012 as a result of delinquent real estate taxes coupled with rising employee benefit expenditures. The rating also factors in the city's tax base that has been relatively stable until a moderate decline in 2011 and 2012, with potential further declines going forward.. The rating also reflects the city's above average debt burden, along with its below-average socio-economic indicators.
The negative outlook reflects the expectation that the city's financial pressures will continue to increase and further narrow the city's financial position in the near term.
Effective January 1, 2012, all local governments in New York State are subject to a property tax cap which limits levy increases to 2% or the rate of inflation, whichever is lower. While school district debt has been exempted from the cap, debt has not been exempted for all other local governments. Moody's believes that the risks associated with the property tax cap remain unchanged and we do not foresee making a rating distinction between debt subject and not subject to the cap. For more information regarding the property tax cap please reference the Special Comment "New York Local Governments' Debt Under New Property Tax Cap to Be Rated the Same as Unlimited Tax General Obligation Debt " released May 14, 2012.
STRENGTHS
- Large manufacturing tax base that benefits from employment opportunities in neighboring Albany
CHALLENGES
- Narrow financial position and liquidity position
- Declining property tax collections
- Above average debt burden
WHAT COULD MAKE THE RATING CHANGE-UP (REMOVAL OF NEGATIVE OUTLOOK):
* Significant increase in the city's financial flexibility and reserve position
* Decrease in the city's debt burden
WHAT COULD MAKE THE RATING CHANGE-DOWN
* Fiscal 2012 results are lower than current expectations.
* Failure to enact a plan to stabilize operations and increase property tax collections
The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on http://www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on http://www.moodys.com.
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on http://www.moodys.com.
Information sources used to prepare the rating are the following: parties involved in the ratings, public information.
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see the ratings disclosure page on http://www.moodys.com for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on http://www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on http://www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on http://www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website http://www.moodys.com for further information.
Please see http://www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Danielle Moretto Associate Analyst Public Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653
...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......
The replacement of morality and conscience with law produces a deadly paradox.
STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS
Rating Action: Moody's affirms City of Schenectady, NY's GO at A3; removes negative outlook Global Credit Research - 23 Jan 2015 A3 applies to $35M of outstanding rated GO debt New York, January 23, 2015 -- Moody's Investors Service has affirmed the A3 rating on the City of Schenectady's (NY) $35.3 million of outstanding general obligation debt. The bonds are secured by the city's general obligation pledge as limited by the Property Tax Cap-Legislation (Chapter 97 (Part A) of the Laws of the State of New York, 2011). At this time, we have removed the negative outlook on the city.
SUMMARY RATING RATIONALE
The A3 rating reflects the city's moderately-sized tax base located near the state capitol, below-average socioeconomic indicators and a favorable sales tax trend. The rating also incorporates the city's high debt burden and modest pension burden.
The removal of the negative outlook incorporates the stabilization of the city's financial position over the past two years. The city has cut costs, improved liquidity, and benefitted from increases in sales tax receipts and improved property tax collections, to attain financial stability.
OUTLOOK
Outlooks are generally not applicable for local government credits of this size.
WHAT COULD MAKE THE RATING GO UP
• Sustained fund balance growth
• Structurally balanced budget for 2016, including full pension payments
• Reduction of debt
WHAT COULD MAKE THE RATING GO DOWN
• Declines in 2014 fund balance greater than current expectation
• Failure to replenish fund balance appropriation in fiscal 2015
OBLIGOR PROFILE
The City of Schenectady has a population of 66,078 and is located in the eastern portion of New York State on the Mohawk River about five miles west of Albany.
LEGAL SECURITY
The outstanding GO debt is secured by the city's general obligation pledge as limited by the Property Tax Cap-Legislation (Chapter 97 (Part A) of the Laws of the State of New York, 2011).
USE OF PROCEEDS
Not applicable.
RATING METHODOLOGY
The principal methodology used in this rating was US Local Government General Obligation Debt published in January 2014. Please see the Credit Policy page on http://www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on http://www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see http://www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on http://www.moodys.com for additional regulatory disclosures for each credit rating.
Michael Gusta Associate Analyst Public Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Robert Weber Vice President - Senior Analyst Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653
...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......
The replacement of morality and conscience with law produces a deadly paradox.
STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS
Because this mayor is taking more and more from the taxpayers, thus the taxpayers' FICO scores are falling along with their home values, and others are losing their homes altogether because they can't afford to pay the ever increasing taxes.
We were away a few days last week due to the death of an uncle of Mike's. The couple moved to a nearby state probably 15 years ago to be with their son, daughter in law and grandkids. Naturally some conversation among the family came up about the city (people who have died, small talk about stores that have moved, schools that have closed, etc. and naturally a bit about taxes. The aunt and uncle rented in a senior complex, but Mike's cousin, well his wife, had, in a scrapbook of all places, the final tax bills from the aunt and uncle's house in the city. The total of taxes and fee total was about $2,700. Today we went on the applicable websites to see the taxes of their former house. Back then, they had the basic STAR, if they lived there today, their total tax bill with Senior STAR (an additional savings of about $700 over Basic STAR) would be about $6,800 per year. Of course one must not look only at the amount of the tax bills in total but must also take into account the market value of the house. The assessed value on their house is about $20,000 less than they sold the house for, which means that the market value of the house is much lower.
It's almost criminal what is going on in the city. All the handouts to millionaires and billionaires, tax exemptions to the same, and the elected get their kickbacks from their cronies. Maybe the FBI should be investigating the corruption in Schenectady city, they might the same on the city level as they found on the state level with Sheldon Silver, only difference would be in the proportionate value of the difference between a city and the state
Optimists close their eyes and pretend problems are non existent. Better to have open eyes, see the truths, acknowledge the negatives, and speak up for the people rather than the politicos and their rich cronies.
Apparently it's not a joke. Well, the claim that city property values will rise this coming year. Well, the mayor thinks so. But then, those of us who are intelligent know that the mayor, and his cheerleaders, have no intelligence at all.
They were down another 4% last year-highest in the Capital District. The Gazetto did an article stating this based on more sellers calling real estate offices. The lack of basic economics is shocking. We need more buyers not more sellers in a collapsing real estate market. The casino? More police/foreclosures/strain on social services/EMT calls. There is no bottom in site and the current administration keeps crapping out.
depending on where you own property....there are folks who can not wait for this casino to open. many said that they will be able to name their price!! that OF COURSE will be a wait and see.
When the INSANE are running the ASYLUM In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. -- Friedrich Nietzsche
“How fortunate for those in power that people never think.” Adolph Hitler
Logged
They were down another 4% last year-highest in the Capital District. The Gazetto did an article stating this based on more sellers calling real estate offices. The lack of basic
