Sir,
Your comment “Nordea’s Research Move Opens Way to Criticism of Ratings Industry” (September 2004) ignores some basic, but crucial, facts about Standard & Poor’s modus operandi and track record. It suggests that either the integrity of our credit rating opinions might, in some unexplained way, be compromised by the fact that we have an equity research business or, conversely, that our equity research recommendations might be tainted by the fact that we perform credit ratings. The truth, as investors will attest, is that our credit rating and equity research activities are entirely separate and have been so for decades.
The ultimate proof of our objectivity is our performance. Third-party studies of our credit ratings – most recently by the Federal Reserve and the Bank for International Settlements – have consistently demonstrated their strong correlation with default risk. At the same time, over the last 20 years, our independent equity research
recommendations have far outperformed their respective index benchmarks. In that regard, it is perhaps worth noting that nearly 24% of Wall Street’s “sell” recommendations in 2000 were from Standard & Poor’s Equity Research, despite it accounting for less than 1% of total recommendations.
Finally, you urge the banking industry to find an answer to “who should regulate the ratings agencies?” You overlook the fact that the sector has already pronounced on this. As the European Banking Federation said in its recent response to the Committee of European Securities Regulators’ “call for evidence” about ratings agencies: “Legislation is not the appropriate route … Self-regulation through an international Code of Conduct would establish a well-functioning balance between the different interests of rating agencies, investors and issuers.”
Yours, Martin Winn, vice-president, communications, Standard & Poor’s
