Australia’s court issues landmark judgment against S&P Ratings Agency
McGraw-Hill Cos. (MHP) and Moody’s Corp. (MCO), owners of the two-largest credit rating firms, plummeted after an Australian judge ruled Standard & Poor’s misled investors by giving its highest credit grade to securities whose value plunged during the global financial crisis.
S&P parent McGraw-Hill fell as much as 7.1 percent in New York, the most since August 2011, according to data compiled by Bloomberg. It dropped 4 percent to $52.24. The parent of Moody’s Investors Service declined as much as 4.4 percent, the most since November 2011, before closing down 3 percent at $46.60.
S&P was “misleading and deceptive” in its rating of two structured debt issues in 2006, Federal Court Justice Jayne Jagot said in her ruling released today in Sydney. The Australian municipalities that brought the case are entitled to damages from S&P and two other defendants, ABN Amro Bank NV and Local Government Financial Services Pty., she ruled. The ratings company said it will appeal.
“This is the first time that a ratings agency has been held liable for their opinion in this way,” said Harald Scheule, as associate professor of finance at the University of Technology Sydney. It may spur efforts to move the industry toward a model in which consumers instead of issuers pay for credit opinions, he said.