Calpers, California’s largest pension fund, has filed suit against the big three rating agencies: S&P, Moody’s and Fitch. In essence it is claiming that the agencies assigned inflated ratings to particularly risky securities. According to a statement issued by the state-sector fund, this erroneous guidance cost it some $1bn. Expert opinions on the case differ.

Calpers chose to invest the pension savings of California residents in top-rated (AAA) mortgage paper – entirely on the basis of assessments provided by the top rating agencies. Rating agencies constantly issue reminders that their conclusions constitute opinions and do not represent absolute truth. Pavel Mitrofanov, who heads the investment rating section of Expert RA, told Business FM that the Calpers suit is an attempt to shift responsibility onto someone else: “A company that makes investments should have its own team of analysts who estimate risks independently of any outside opinions. Ratings are no more than a guideline. There is no way to prove that the agencies miscalculated.”
   
RusRating General Director Richard Hainsworth is of another opinion: in his view Calpers has a good chance of winning its case. America’s Securities and Exchange Commission has acknowledged that rating agencies have a right to their own opinions. At the same time, their privileged position of evaluators means they have an obligation to be particularly careful in estimating risks. Hainsworth is thus confident that this case will set a precedent. The entire rating system is under threat: “The SEC’s own conclusion was that the agencies were mistaken when they assigned high ratings to those securities. So Calpers is in a strong position when it comes to sub-prime paper. That means the case is likely to go to America’s highest court.”

As the crisis unfolded a wave of corporate protests forced the agencies to cut their ratings on close to 10 000 investment instruments. The claims against them are building. Experts say they are often unable to keep up with current market conditions, although the problem isn’t always a matter of delays or mistakes. Some in the US have complained that the agencies have a vested interest in issuing higher ratings to the companies that pay five-figure sums for their services.

 

Source: Prime-TASS Business News