S&P to pay $77 million to settle U.S. civil charges over ratings

Wed Jan 21, 2015 6:44pm EST
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By Sarah N. Lynch and Karen Freifeld

WASHINGTON/NEW YORK (Reuters) - Standard & Poor's will pay $77 million and be barred for one year from rating commercial mortgage-backed securities, in an unprecedented settlement with U.S. and state regulators who accused the U.S. credit rating agency of misleading investors.

This is the first time the U.S. Securities and Exchange Commission has levied civil charges against one of the Big Three credit-raters since it won authority from Congress in 2006 to police the sector. An SEC official said he expected more enforcement actions.

S&P neither admitted nor denied wrongdoing in the settlement announced on Wednesday. The deal affects securities issued by so-called conduit lenders, who originate commercial mortgages to package into securities for sale to investors.

"The settlements do not affect any outstanding S&P Ratings credit ratings or the manner in which S&P Ratings conducts credit analysis under the relevant criteria," the company said in a statement.

Research analysts downplayed the impact of the time-out period on S&P and its bottom line.

"While the one-year suspension is a black eye for S&P, it will likely have minimal financial impact given S&P's low share in this niche segment," a Piper Jaffray report said.

The commercial mortgage-backed securities (CMBS) market accounts for just 1 percent of S&P's overall revenue, Piper Jaffray noted. S&P's total 2013 revenue was about $4.9 billion, according to its annual report.

Even bigger potential settlements are on the horizon for S&P, said two sources who asked to be anonymous because the deals have not been finalized.   Continued...

A view shows the Standard & Poor's building in New York's financial district February 5, 2013. REUTERS/Brendan McDermid