Criticism
Role in the 2008 financial crisis
Credit rating agencies such as S&P have been cited for contributing to the 2008 financial crisis. Credit ratings of AAA (the highest rating available) were given to large portions of even the riskiest pools of loans in the collateralized debt obligation (CDO) market. When the real estate bubble burst in 2007, many loans went bad due to falling housing prices and the inability of bad creditors to refinance. Investors who had trusted the AAA rating to mean that CDO were low-risk had purchased large amounts that later experienced staggering drops in value or could not be sold at any price. For example, institutional investors lost $125 million on $340.7 million worth of CDOs issued by Credit Suisse Group, despite being rated AAA by S&P.
Companies pay S&P, Moody's, and Fitch to rate their debt issues. As a result, some critics have contended that the credit ratings agencies are beholden to these issuers in a conflict of interests and that their ratings are not as objective as they ought to be, due to this "pay to play" model.
In 2015, Standard and Poor's paid $1.5 billion to the U.S. Justice Department, various state governments, and the California Public Employees' Retirement System to settle lawsuits asserting its inaccurate ratings defrauded investors.
Criticism of sovereign debt ratings
In April 2009, the company called for "new faces" in the Irish government, which was seen as interfering in the democratic process. In a subsequent statement they said they were "misunderstood".
S&P acknowledged making a US$2 trillion error in its justification for downgrading the credit rating of the United States in 2011, but stated that it "had no impact on the rating decision".
Australian Federal Court decision
In November 2012, Judge Jayne Jagot of the Federal Court of Australia found that:
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"A reasonably competent ratings agency could not have rated the Rembrandt 2006-3 CPDO AAA in these circumstances"; and
"S&P’s rating of AAA of the Rembrandt 2006-2 and 2006-3 CPDO notes was misleading and deceptive and involved the publication of information or statements false in material particulars and otherwise involved negligent misrepresentations to the class of potential investors in Australia, which included Local Government Financial Services Pty Ltd and the councils, because by the AAA rating there was conveyed a representation that in S&P’s opinion the capacity of the notes to meet all financial obligations was “extremely strong” and a representation that S&P had reached this opinion based on reasonable grounds and as the result of an exercise of reasonable care when neither was true and S&P also knew not to be true at the time made."
In conclusion, Jagot found Standard & Poor's to be jointly liable along with ABN Amro and Local Government Financial Services Pty Ltd.
Antitrust review
In November 2009, ten months after launching an investigation, the European Commission (EC) formally charged S&P with abusing its position as the sole provider of international securities identification codes for United States of America securities by requiring European financial firms and data vendors to pay licensing fees for their use. "This behavior amounts to unfair pricing," the EC said in its statement of objections which lays the groundwork for an adverse finding against S&P. "The (numbers) are indispensable for a number of operations that financial institutions carry out – for instance, reporting to authorities or clearing and settlement – and cannot be substituted.”
S&P has run the CUSIP Service Bureau, the only International Securities Identification Number (ISIN) issuer in the US, on behalf of the American Bankers Association. In its formal statement of objections, the EC alleged "that S&P is abusing this monopoly position by enforcing the payment of licence fees for the use of US ISINs by (a) banks and other financial services providers in the EEA and (b) information service providers in the EEA." It claims that comparable agencies elsewhere in the world either do not charge fees at all, or do so on the basis of distribution cost, rather than usage.
