Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : TTRE (TTR Incorporated) -- Ignore unavailable to you. Want to Upgrade?

To: StockDung who wrote (385)	1/27/2003 11:00:21 AM
From: afrayem onigwecher	Read Replies (1) \| Respond to of 609

CALLED TO ACCOUNT SEC Will Probe Practices Of Credit-Rating Agencies By MICHAEL SCHROEDER and GREGORY ZUCKERMAN Staff Reporters of THE WALL STREET JOURNAL In the first sign of a possible shake-up of the credit-ratings business, securities regulators have told Congress of plans to look into anticompetitive practices and other issues related to the biggest rating agencies. The study could lead to new oversight of the industry by the Securities and Exchange Commission, among other changes. The scrutiny means that credit-rating agencies now may join the ranks of accounting firms and Wall Street research houses to fall under the spotlight in the wake of the bursting of the stock-market bubble. The major ratings agencies raised eyebrows last year after a stream of corporate scandals and defaults weren't telegraphed by the ratings agencies' analysts. Critics also have long complained of conflicts of interest within the agencies themselves. Among issues the SEC will study, according to a report sent Friday to Congress, is whether the criteria for awarding rating agencies the government's seal of approval excludes smaller competitors. Smaller firms have long griped that the big three agencies -- Standard & Poor's, Moody's Investors Service and Fitch -- shouldn't be the only such companies to be designated as nationally recognized statistical-rating organizations, or NRSROs. This designation enables their ratings to be used as a crucial investment guideline by bond investors evaluating fixed-income investments, and by companies and other issuers selling debt. The SEC also said it would look at possible conflicts of interest that result from rating agencies' getting paid by the companies whose debt securities they rate and whether more disclosure is needed of how the firms determine the creditworthiness of securities. The report said the SEC would issue a "concept release" within 60 days outlining practices of the industry that may need regulation. The SEC said it "expects to issue proposed rules after reviewing and evaluating" input the agency receives during a comment period on the release, which likely would cover 30 to 60 days. The SEC said it will decide whether it needs to seek new authority from Congress to impose more direct oversight over the industry. Rule proposals aren't expected to be floated until this summer and no initiative will go forward unless it has the support of the new SEC chairman, William Donaldson, who is expected to be officially nominated for the post this week. His predecessor, Harvey Pitt, will continue to serve until the Senate approves Mr. Donaldson. For their part, the rating agencies say they were heartened that the SEC is suggesting only more study, rather than recommending immediate changes. "Rating agencies come out looking pretty well" in the report, argued Stephen Joynt, president and chief executive officer of Fitch Ratings, a unit of Fimalac, of Paris. Leo O'Neill, president of Standard & Poor's, a unit of McGraw-Hill Cos., said "We look forward to working with the SEC as we have for over 25 years on similar issues." A spokesman for Moody's, a unit of Moody's Corp., didn't return telephone calls seeking comment. Agencies' Power Has Been Issue For years there has been grumbling about the power of the rating agencies and what is seen as their mixed track record. Critics cite their inability to warn investors about developing problems in Asian nations before the currency difficulties of 1997 and the parade of telecommunication companies that defaulted on their debt in the past few years, including some, such as WorldCom Inc., that were rated investment-grade. The complaints picked up last year after Enron Corp. filed for bankruptcy protection in late 2001, hurting many bondholders, just four days after all three rating agencies rated Enron as an investment-grade credit. Some investors said the rating agencies should have caught on as Enron shifted debts off its balance sheet because the agencies are exempt from the SEC's Regulation Fair Disclosure, which limits the information provided to Wall Street analysts and investors by companies. And while some investors complain that the rating agencies were too slow to downgrade companies during the bull market, others say they have been too eager to cut ratings in the past year or so. For their part, the rating agencies say they were duped by Enron, just as investors and analysts were. And the agencies' track record is generally good, many analysts agree, despite some high-profile mistakes. Past Calls for Change Unheeded To be sure, there have been calls for change in the past on Capitol Hill, with very few results. As far back as the early 1990s, after the Washington Public Power Supply System and Orange County, Calif., defaulted on their debt, the SEC and Congress reviewed the status of the credit-rating agencies, amid complaints that the rating agencies didn't give investors heads up before the defaults took place. The SEC issued a concept release in 1994, which resulted in a rule proposal three years later that was never acted on. In that 1997 rule proposal, the SEC suggested establishing criteria for the credit-rating designation and creating a formal appeals process for firms that are denied recognition. One problem for would-be NRSROs is that the designation hasn't ever been formally defined. The SEC said it plans to study how the term should be defined clearly so firms know what being an NRSRO means and what it takes to become one. The SEC held hearings in November on credit-rating agencies to gather information for the report that was mandated by the Sarbanes-Oxley Act, which prescribed new regulations to improve the quality of public company audits and financial reporting. The Senate Committee on Governmental Affairs issued a report in early October criticizing the credit-rating agencies and urging the SEC to impose minimum standards for credit-rating methods. Write to Michael Schroeder at mike.schroeder@wsj.com3 and Gregory Zuckerman at gregory.zuckerman@wsj.com4 URL for this article: online.wsj.com Hyperlinks in this Article: (1) online.wsj.com (2) online.wsj.com (3) mailto:mike.schroeder@wsj.com (4) mailto:gregory.zuckerman@wsj.com Updated January 27, 2003