MF Global’s hearing has been set, and former CEO Jon Corzine’s name has been called.
Corzine, who is known for being an ex-Goldman Sachs CEO and former governor and senator of New Jersey, is definitely the biggest name on the list of individuals and agencies that the House Committee on Financial Services’s Oversight and Investigations subcommittee has asked to come in and testify next month.
That’s a lot of heavy hitters, but one of the most interesting testimonies could come from a ratings agency, Standard and Poor’s.
Fitch, Moody’s and S&P all reviewed MF Global’s credit rating prior to the firm’s bankruptcy, Bloomberg reported. Moody’s acted first—they downgraded MF Global to a notch above junk on Monday, October 24 and it was the first very public warning about MF Global’s unstable business model and exposure to European debt. The downgrade sent MF Global share prices plunging.
S&P, however, kept MF Global’s credit rating at BBB minus—that’s one notch about junk. Only after MF Global declared bankruptcy was the S&P rating pushed to D, default.
Back when the whole MF fiasco was still unfolding, Francine McKenna wrote an interesting piece for the American Banker about the ties between MF Global and S&P. Apparently, S&P’s non-executive director of ratings, Richard Moore, was appointed managing director of MF Global Europe this April. Another interesting connection? Pedro Aspe, co-chairman of Evercore—the bank MF hired to explore strategic options—is also a director at S&P. (UPDATE: For clarification, Pedro Aspe is actually a director at McGraw-Hill, which is the parent of Standard & Poor’s)
This convoluted, mixed bag of connections is not rare within the financial industry and is somehow always unearthed after the worst has happened. The S&P relationship is certainly not the only high-powered association that MF Global had access to, but it would definitely be interesting to hear their explanation on why MF Global wasn’t downgraded until after it filed for bankruptcy.
Even if the cozy ties turn out to be nothing substantial, the MF Global miss would just be added to a long list of major rating gaffes for S&P. The agency has admitted that it downgraded the U.S. credit rating in August after a huge maths miscalculation. And do we need to mention the “typo” S&P made when it downgraded Brazil and when the firm “accidentally” downgraded France?
Whatever the case, we’re looking forward to December 15.
UPDATE: A source familiar with S&P Ratings has told us the following: “Richard Moore has no input into the ratings process and is not in contact with anyone on the teams that determine S&P’s credit ratings, such as those for MF Global, said a source familiar with S&P ratings.” It clears up the relationship issues, but we’re still interested in hearing the explanation for lack of action on MF Global.