The head of beleaguered credit rating agency Standard & Poor’s announced on Monday that he will resign. Deven Sharma, whose four-year tenure as CEO has witnessed the largest scandal in the company’s 151-year history, will leave the company at the end of the year.
“It has been a privilege to serve as the president of S&P and I am proud of what we as an organization have achieved over the past four years,” Sharma said in a prepared statement sent to Credit.com.
Sharma’s tenure has been tumultuous. Ever since the financial crash three years ago, Standard & Poor’s has been criticized, along with the other large ratings agencies, Moody’s and Fitch, for giving top investment grades to bundles of high-risk subprime mortgages.
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These ratings made it legal for institutional investors, like pension funds, to buy such securities, and therefore may have given investors a false sense of security in the credit worthiness of those vehicles. After the crash, it was revealed that Standard & Poor’s was actually getting paid by the very Wall Street firms that stood to earn billions of dollars from the sale of those securities.
“The three credit rating agencies were key enablers of the financial meltdown,” the Financial Crisis Inquiry Commission found in its final report.
That potential conflict of interest is being investigated by the Justice Department, according to The New York Times.
In addition, S&P became the object of widespread scorn after it downgraded the credit rating of the United States government from AAA to AA+ in early August. That implies the U.S. government is less creditworthy than the high-risk securities that S&P’s rated as triple-A just a few years ago.
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And as Jon Stewart humorously pointed out on the Daily Show, the downgrade means that S&P believes the United States’ ability to pay its debts is lower than that of the Luxemburg and the Isle of Man, a tiny rock of a nation off the coast of Great Britain most famous for its annual daredevil motorcycle races.
“Ouch,” Stewart said of the downgrade.
The scandals had nothing to do with Sharma’s decision to step down, the Times reports, quoting company sources who spoke off the record. Instead, his resignation had more to do with an internal fight among shareholders of McGraw-Hill, which owns S&P, over whether the company should be split in two: One company that sells ratings of debt and creditworthiness, another that produces the famous S&P 500 and other stock indexes.
In Sharma’s place, S&P announced it is hiring Douglas Peterson, chief operating officer at Citibank, to be the company’s new CEO.
“We are pleased to welcome Doug to the important role of president of Standard & Poor’s as it continues to build on the enhancements of recent years and accelerates global growth,” Harold McGraw III, CEO of McHraw Hill, said in the company’s statement. “Doug is a seasoned executive with more than 25 years of global experience in financial services, risk management and capital markets.”
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Image: B64, via Wikimedia Commons