Value Expectations's picture

There are several articles and studies around the finance industry that talk about the value of sell-side analyst ratings or the lack thereof. Most of the studies provide a negative view of the accuracy of ratings from sell-side analysts and bring to light the many potential problems associated with sell-side analysts and their ratings including conflicts of interest with the firms that employ them as well as their tendency to appease management teams who provide them with information not available to the public by providing favorable ratings for those firms. Some other problems associated with sell-side analyst ratings include: 1) Buy recommendations outnumber sell recommendations some speculate for the purpose of making management happy. 2) Analysts often downgrade firms after negative news has already hit public eyes. 3) Unable to purchase the stocks that they cover, no “skin in the game” 4) Analysts often find comfort in being a part of the majority and often times fall victim to groupthink. 5) Compensation analyst’s receive has been found to be tied to the investment banking business the analyst generates.

SEC Refuses To Sue Moody's Over Computer "Glitch" Which Inflated Ratings By 1.5-3.5 Notches On Thousands Of CDOs

Another day, another SEC farce. Today, Schapiro's captured henchmen sent a notice to credit rating agencies about internal conduct and methods the firms use to determine the riskiness of financial products. As the alternative was to pursue a fraud enforcement action, in this particular case against Mark Zandi's Moody's, one can see why the SEC opted out for the action that would not implicitly open it up as well to like legal treatment by millions of investors, who had kinda, sorta hoped that the SEC would not allow this kind of fraud in the first place. As Housing Wire reports, "the SEC announcement stems from an inquiry by its enforcement division into whether Moody's Investors Service violated registration provisions or anti-fraud provisions of federal securities laws." Additionally, "the commission notes that Dodd-Frank gives federal district courts jurisdiction over SEC enforcement actions that allege violations of the anti-fraud provisions of the securities laws." In other words, while the SEC is a toothless, gutless, corrupt POS, others may take offense to this lack of responsible action and sue Moody's directly. And what is the reason for the SEC investigation? Why, a computer "glitch", which "inadvertently" raised the ratings of various notes by up to 3.5 notches! Housing Wire notes: "The SEC inquiry stems from allegations that a Moody's computer coding
error improved, "by 1.5 to 3.5 notches," the credit ratings for certain
debt obligation notes."
Yet having been caught with its pants down was not enough for Moody's to actually fix the "glitch" - "shortly thereafter during a
meeting in Europe, a Moody's rating committee voted against taking
responsive rating action, in part because of concerns that doing so
would negatively impact Moody's business reputation." And people are surprised that wholesale market manipulation occurs on a day to day basis, with the ongoing blessing of the SEC...

Arbing Moody's Sovereign Ratings Via CDS Pair Trades

Now that sovereign CDS (and ratings) are back in vogue with everyone finally expecting the world to relapse into a double dip, Zero Hedge has compiled Moody's sovereign ratings and spread these alongside the CDS levels in any given bucket to propose several trade ideas taking advantage of Moody's market lagging inefficiency.

Reggie Middleton's picture

Why isn't the popular financial media reporting the fact that Greece's funding costs increased after the $1 trillion dollar bailout? Why isn't it pointed out the Portugal's credit rating has been dropped - post bailout? Exactly what is $1 trillion US dollars good for these days - trick question, but I dare 'ya to answer :-)

S&P Warns It Could Cut Largest Spanish Deposit Bank Counterparty Credit Ratings

As if Spain needed any more reasons for an unprecedented liquidity shortage, here is the latest action from S&P on Caja Madrid, which as we reported yesterday, is in the process of soaking rescue funding as part of its merger with Bancaja and several other smaller banks. "The negative implications reflect the possibility that we could lower the counterparty credit ratings. We expect to resolve the CreditWatch placement in two steps. First, we will evaluate the magnitude of the expected deterioration in Caja Madrid's financial profile over the next 18 months and the ensuing implications for the savings bank's stand-alone credit profile. As a result, we could lower our assessment of the SACP by one or more notches in the short term, depending on the extent of the weakening we foresee. We could envisage, however, lowering our ratings on Caja Madrid's hybrid instruments by one or more notches."

Leo Kolivakis's picture

Credit Ratings Offensive?

The European Commission is proposing that an already-planned central European Union regulatory body — the European Security Markets Authority — should take on oversight of the existing rating agencies when it is due to begin work in January 2011. Will this be enough?

Moody's Head Of Sovereign Ratings Pierre Cailleteau Leaving Disgraced Firm

First the SEC issues a Wells Notice, and threatens an NRSRO registration C&D, and now the head of the firm's sovereign rating group, arguably the most important business aspect left to the discredited rating agency, leaves the company. Time for Moody's to issue a D-rating on itself. We wonder just who the administration's hand-picked replacement for Mr. Cailleteau is going to be.

Goldman Pounding Continues As Cuomo Now Investigates Firm (And 7 Others) For Manipulating Ratings

There does not seem to pass a day anymore without Goldman having to do a daily trip to CVS to buy a barrel of KY. The NYT reports that today's criminal investigation comes courtesy of Ny AG Andrew Cuomo who is now investigating whether 8 banks provided misleading information to rating agencies in order to inflate grades of mortgage and other securities. The banks in question are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch. We are confident that unless "misleading information" is a euphemism for massive and totally unwarranted fees (and expenses), and oftentimes criminal leaks (Deep Shah comes to mind), Cuomo will find little to base an actual investigation on. Furthermore, as an escape mechanism, the rating agencies can always place the blame on Microsoft for creating a faulty Excel product whichalways # Ref'ed out whenever the agencies tried to put in anything less than infinite growth rates.

S&P Commits Professional Suicide With Ratings Round Trip, Underlying CRE Remains Toxic Garbage

Rare? Medium Rare? Medium? Well Done? S&P? Indeed, as the last peg in the gradation of burnt to a crisp, S&P smells completely done. As in there isn't even left a shadow of a doubt that all S&P does is pander to the solicitations of whatever few remaining clients it may have, or, as the case may be, the U.S. government. Any credibility S&P, which one would be excused for confusing with Sycophantic & Pathetic, may have tried to salvage over the past 6 months has been gutted and left to dry after this most recent fiasco, which is the final straw on theMcGraw-Hill subsidiary's expedited route to the NRSRO utterly discredited trash heap.

The Zero Hedge Contributor Guide
July 2009