S&P to pay $1.38bn to settle mortgage crisis lawsuits
The agreement follows government allegations that the global rating agency had inflated the ratings of both mortgage-backed securities and other assets between 2004 and 2007 which in turn helped set off the financial crisis and recession.
USA Today reports that the US government alleged that S&P had falsely claimed its ratings of mortgage securities and collateralised debt obligations (a type of derivative) were objective and independent.
But in a statement of facts as part of the settlement, S&P admitted that company executives had complained that it was not downgrading bonds because it was worried about losing business from companies who had hired it to rate their securities.
USA Today quotes US Attorney General Eric Holder as having said: “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.
“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.”
But whilst S&P acknowledged its fraudulent conduct with the ratings of the structured financial products it said it had not admitted to any legal violations.
A statement said: “The settlement agreement states that all parties, including the company, the [US Justice Department] and the states, settled this matter ‘to avoid the delay, uncertainty, inconvenience, and expense of further litigation’.”
It added that agreeing to the payments was “in the best interests of the company and its shareholders”.