Doug Peterson, the new president of Standard & Poor's Ratings Services, defended the firm's downgrades of U.S. and European sovereign bonds, rebuffing criticism the ratings company had become more aggressive following the financial crisis.
In the first interview since taking the helm at S&P, a division of McGraw-Hill Cos., Peterson said the firm simply followed its criteria for rating government debt. Those standards were strengthened just before S&P downgraded U.S. debt, according to the firm's published criteria.
"The team we have in sovereigns is a world-class team," said Peterson, who succeeded Deven Sharma as president of S&P on Sept. 12. The criteria for rating countries' debt, which were updated on June 30, "provide the core for how we do our analysis."
Peterson, a former Citigroup Inc. executive, assumed command at S&P during one of the most tumultuous periods in its history. Still stung by criticism that the firm and its peers assigned top ratings to complex mortgage deals that imploded during the financial crisis, S&P more recently has drawn scrutiny for a string of research calls—including becoming the first major ratings firm to strip the U.S. of its top-notch triple-A grade in August. Last week, S&P downgraded the debt of France, Portugal, Spain and several other European countries.
The market's reaction to the latest spate of downgrades has been muted. Prices on 10-year French bonds, for instance, declined slightly this week, pushing yields from 3.09% Friday to 3.15% Wednesday, according to data from trading platform Tradeweb.
The U.S. and euro-zone downgrades are an indication "S&P has changed its approach," at least in rating sovereign debt, said Adrian Miller, senior vice- president of global-markets strategy at GMP Securities LLC. S&P "is trying to garner more support from the market. They're trying to say, 'We're all over this subject, and we're calling it the way we see it,'" Miller said.
Peterson said the firm wasn't walking a bolder line than its rivals or aiming to move the markets with its analysis.
"The value that we will bring is in having the right, very high-quality methodologies, analytics, people, training, intellectual property, publishing, etc.," he said.
Peterson said S&P is looking to further its push into emerging markets. The firm announced at the end of last year it had about a 5% stake in ratings firms in Thailand and Malaysia. He wouldn't comment on whether the firm was considering additional acquisitions but noted they would consider expanding "anywhere there's a lot of growth in markets."
Peterson said his experience working in the highly regulated banking sector, most recently as chief operating officer of Citigroup's Citibank unit, will help him navigate the increased regulation credit-rating firms are facing after the passage in July 2010 of the Dodd-Frank financial overhaul.
The 53-year-old Peterson worked for Citigroup for 26 years, logging stints at postings from Argentina and Uruguay to Costa Rica. The bank's far-flung operations have so far proved the ideal training ground, he said, for his job at S&P, which has over 1,300 analysts in 23 countries.
During his career at Citigroup, Peterson honed his diplomatic skills, learned to deal with regulators and developed a reputation as an effective trouble-shooter. Peterson also is known for a methodical nature, which was recently on display on the 37th floor of S&P's downtown Manhattan headquarters. As the interview began, Peterson carefully lined up three cocktail napkins before him.
Before Peterson's stint as Citibank COO, which began in 2010, he helped rebuild the company's operations—and its reputation—in Japan, where regulators had shut Citi's private bank amid accusations it overcharged customers and failed to prevent money laundering.
A career's worth of experiences at what was once the world's largest financial-services firm also gave Peterson an understanding of the effects credit ratings can have on banks, markets and local economies.
Peterson said he has made it a priority for himself and his team to meet with regulators, which he said are one of the credit-rating firm's "most important constituencies."
S&P is facing increased competition. In 2011, for the first time in 14 years, top rival Moody's Corp.'s Moody's Investors Service wrested the top market-share slot from S&P in ratings on deals backed by home mortgages and other assets, according to Asset-Backed Alert, an industry newsletter.
A drop in market share, Peterson said, wasn't a problem "if we lost it for the right reasons." He declined to elaborate on that point.
Lawmakers have accused ratings firms of being too lax in granting top grades to keep issuers from turning to their competitors for ratings. Rating firms say they have standards in place to ensure that doesn't happen.
S&P also is reeling from some high-profile stumbles in recent months, including an announcement of a downgrade of France's debt in November, even though it took no such action at the time. S&P said it was a "technical error." Peterson says he has taken steps to ensure such errors and misunderstandings are limited in the future, relying in part on his stint as a chief auditor at Citibank.
"Because there were a couple of highly visible errors that took place after I came on board, it gave me an opportunity to ensure that we have the right priorities and right focus on these going forward," Peterson said.
Peterson said he rolled the firm's technology, operations and data team into one group, and did the same with the control, risk and oversight groups. Those two units now report to him.
Separately, on Wednesday, Fitch Ratings announced President Paul Taylor would succeed Stephen Joynt as chief executive of Fitch Group, a unit of Fimalac SA, on April 2. Fitch Group includes the ratings business and a data-service arm.
This story first appeared on WSJ.com.
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