S&P Strikes Back: Pulls Rating On $1.5 Billion CMBS Deal, Forces Goldman And Citi To Scrap Sale

Tyler Durden's picture

In possibly the most important underreported news of the day, Goldman and Citi were forced to scrap a $1.5 billion CMBS deal after S&P shocking refused to rate the notes. This unprecedented development left GS and C scrambling. Per BusinessWeek: "The deal won’t close today as planned because S&P is reviewing its criteria for commercial mortgage-backed securities and can’t provide a rating, the banks said in a joint statement through Business Wire. “Ratings are a condition precedent to closing and settlement,” Goldman Sachs and Citigroup said in the statement. “Standard & Poor’s had previously informed Goldman and Citi that they were prepared to rate” the transaction, they said." End result: $1.5 billion CMBS deal scrapped as it doesn't have the blessing of a rating agency.

This means that anyone who thought that S&P would take the (much deserved) relentless criticism of its endless incompetence without retaliation, will be disappointed.

So let's get this straight: everyone bashes the rating agencies when they tell the truth (Europe), everyone bashes the rating agencies for not telling the truth, and being bribed muppets of the administration (PIMCO and the administration telling S&P how to scare America into debt ceiling submission), everyone bashes the rating agencies for being incompetent idiots during the credit bubble (no explanation needed there), and lastly, everyone still relying on every single word the rating agencies utter.

Here is a proposal: instead of targeting S&P and Moody's, who only do what they are told by Wall Street, by Obama, and by their clients, how about addressing all the incompetent, lazy and greedy "asset managers" who are "enabled" by S&P and Moody's and who choose to do no work or analysis of their own, and as such have no other benchmark other than a rating to go by, which is naturally completely wrong. But how dare anyone cast blame where it truly is deserved: at the heart of the corpulent, bald, and midlife-crisised status quo? After all Ferrari has to sell many more cars to meet its record quota.

More from BusinessWeek on the scrapped sale:

The ratings company, based in New York, won’t give debt grades to any new transactions that are based on the criteria, including the Goldman Sachs and Citigroup deal, it said.


The banks had overhauled the transaction after investors demanded more protection from losses amid concern that ratings from S&P and Morningstar Inc. didn’t accurately reflect the risks, people familiar with the matter said last week. They were seeking to sell securities totaling $1.5 billion, according to data compiled by Bloomberg.


Goldman Sachs and Citigroup boosted the buffer that protects AAA securities from loan defaults by increasing the amount of lower-ranked debt that is first to absorb losses, the people said. The so-called credit enhancement on the highest- graded debt was raised to 20 percent from 14.5 percent.


Banks issued $3 billion in commercial-mortgage backed bonds last week at the highest yields this year as investors pushed back on deal terms after debt crises in the U.S. and Europe roiled markets. Deutsche Bank AG and UBS AG cut a planned sale of commercial-mortgage backed securities by more than 36 percent to $1.4 billion yesterday, according to people familiar with the sale.


S&P ’’is reviewing the application of our conduit/fusion CMBS criteria in relation to the calculation of debt service coverage ratios,’’ the risk assessor said in a separate statement dated yesterday. ’’The review was prompted by the discovery of potentially conflicting methods of calculation.’’

In other words, the opportunity cost of S&P starting to do the right thing, i.e., reviewing its corrupt "business practices" with an eye to actually fixing them, is that members of the kleptocracy will be unable to invest other people's money in various components of the structured ponzi for a while, which also means that bonuses will be lower as the groupthink train will have to invest in other, riskier securities. Which also means that Wall Street is also about to turn on the rating agency scapegoating dial to 10 as our kleptocratic betters start being very concerned about where this year's multi-million bonuses will come from.

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101 years and counting's picture

blame DONK for this.  DONK made rating agencies legally accountable.  now they are telling the truth.

101 years and counting's picture

oops, i think we should be thanking DONK for this, not blaming them.  this is good news.  the banks are being left holding the garbage they were able to unload on unsuspecting victims earlier, courtesy of the ratings companies.

unwashedmass's picture

whoa....someone better discipline those peasants.

karzai_luver's picture


NOW that they have shown their independence and integrity of course all ratings will be AAA!


shifty little guys these bankster cocksuckers.


swissinv's picture

just strange that we never hear something Moody's when it comes to the US... 

Bolweevil's picture

Moody's is on a global jihad while S&P are simply domestic terrorists. Watch how the next TSA controversy involves employees of both.

Slartebartfast's picture

Yet another carefully engineered step forward in the coming manufactured crisis.  Soon, very soon, the Obama regime will be "forced" by the accelerating collapse of the US Treasury and financial markets to invoke Executive Decision Directive 51, set aside Congress and "save us", by setting aside the Constitution - forever.

Coming soon to a street corner near us all!  Hail Obama!  Heil Obama!  Heil Obama!!!

jelyfish's picture

I felt the same way about Bush.  Seems like both parties want the other shoe to drop when they are in charge.

Mercury's picture

Goddamn, what's with the showboating all of the sudden? It's almost like these guys are advertising their willingness to be bribed.  Either that or they aren't afraid of being personally thretened.

It's great that S&P seem to be serving up steaming hot cups of reality but being that we don't have a robust, low barrier to entry and competitive debt rating industry, one can see how this might create certain types of problems in a stress situation where BIG THINGS are at stake...

The Wah!, my duopoly isn't playing ball! line coming from the government is pretty amusing though.

youngman's picture

This is great...maybe we are starting to turn the corner to the good....go S&P.....tell the truth...

molecool's picture

Don't kid yourself - most likely a few stuffed envelopes weren't delivered on time.

unwashedmass's picture

someone should discipline those peasants.

molecool's picture

I thought bankster bashing season isn't until August - S&P is getting an early start.

Dr. Engali's picture

I feel sorry for poor Goldman. What are they going to sell to their clients now and short?

pocomotion's picture

One Mans' Treasure is another mans junk!

snowball777's picture

LOL...this is on par with a john's favorite hooker saying she has a headache tonight and doesn't need the money.


jimijon's picture

Great time to create a forensic accounting / financial / agency / lawfirm.

A bit of hedge money for some nice salaries, nice office and furniture and a few contacts and then boom ... 

profitable and needed and the timing is perfect.

sunnydays's picture

If they were honest in the first place every single one of the MBS sold were have been rated Fs due to the FRAUD of all of them.  Seems S&P doesn't want to be on the hook for rating more FRAUD from Wall Street!  They are probably looking at all the lawsuits hitting the courts for the FRAUD MBS sold through MERS.


As long as Wall Street banks still use MERS then all MBS are Fraud!  Glad S&P are now starting to refuse the fraud. 

buzzsaw99's picture

but, but, the norway teachers and calpers are champing at the bit to buy that crap.

r101958's picture

If we look behind the obvious we might find that this shows the true state of finance/economy.

keepmydollar's picture

I love how they wait until the last minute not to rate them.  Beautiful.  Now to show their true independence they need to downgrade treasuries next week.

swissinv's picture

I hope the S&P HQ is not in Boston

I am a Man I am Forty's picture

wow, everyone's starting to get pissy with one another up at the top, i like it

dallasgringo's picture

TD's review of the BusinessWeek article isn't completely accurate. In the wake of the CMBS collapse in 2008, S&P and the other rating agencies rejiggered their ratings methodology with the S&P's rating changes deviated the most from their historical practices.  So S&P had previously rated the Goldman/Citi CMBS securitzation in question and their new rating model did not provide the amount of credit enhancements the AAA investors had expected/demanded. The investors pushed back, Goldman & Citi were forced to restructure the deal to improve credit enhancements (taking a significant hit on the bond economics for Goldman/Citi) and only then did S&P refuse to rate the newly restructred bond offering....most likely to avoid secondary criticizm from investors as a result of their ratings criteria. S&P is hardly the white knight in this bond offerinngs. Investors pushed back on Goldman/Citi and so they in turn put the screws to S&P. S&P had no answer to the restructured deal so they tabled their new ratings.

pocomotion's picture

The investors could have been countries, foreign governments right???

rosiescenario's picture

Simply amazing....you are saying that the buyers actually did some homework and while so doing noticed that the emperor was buck naked?


This could be the end of Wall Street....the buyer actually looking at the reality of what they are being sold.

dallasgringo's picture

The investors could be life companies, pension funds, foreign investors, you name it.


I work for a fund that buys CMBS bonds and while the AAA generally look at overal credit enhancements and the collateral at a high level, the guys that buy the BBB and below rated bonds really do their due dilligence since any real estate losses will hit them and their investment first. In commerical real estate its easier to do your dilligence because you have income producing properties and tenants and market trends that can be analyzed and quantified. In residential, you have John Doe who has a "Stated" income of $200K but can't provide you with a tax return. Its hard to model John losing his job and not being able to pay his mortgage.

Smiddywesson's picture

I read this as another step in the typical development of any conspiracy.

At first, all the co-conspirators are the pillars of society and their prey don't even know they are being cheated.

Things start to go bad and blame is affixed on something, anything, but the true villains.

That only lasts so long, so the conspiracy enters the denial phase.

Things get worse and the co-conspirators start turning against one another.  This is what S&P is doing.  It means to survive this ordeal, and isn't going to take the fall for any of the other conspirators.

The end can't be far away if a corrupt organization like S&P is doing the right thing.

Smiddywesson's picture

I aslo think there would be limited political blowback from raising the debt ceiling, so I don't read this as scare mongering to effect that change.  I think it is evidence of TPTB losing control of the situation.  That would mean parabolic gold prices will arrive earlier than thought.

Chief KnocAHoma's picture

As a person in the real estate business I can tell you that this is another sign real estate lending is frozen. There are several developments in my area frozen waiting for funding, and the developers are sound.

The land for the development is debt free, the developers have cash to put into the deal, but the banks are locked worse than in 2009.

Banks appear to need all their cash to satisfy loan loss reserves, so none can go out the door.

Only a massive default and reorganization can clear the balance sheets of the toxic messes.

Stay strong!

I am The Chief

Downtoolong's picture

Which also means that Wall Street is also about to turn on the rating agency scapegoating dial to 10 as our kleptocratic betters start being very concerned about where this year's multi-million bonuses will come from.

Yep, get ready for a barrage of scandalous news articles questioning rating practices at S&P compared to Moodys, Fitch and others, all written and published through ostensibly independent media channels who coincidentally see a simultaneous surge in advertising expenditures by Wall Street powerhouses.    

dallasgringo's picture

Interesting fact is that the rating agencies ratings are protected as freedom of speech. No one can sue them for an incorrect rating. It is just their "opinion" and investors must do their own dilligence. Thing is, so many financial products are forced to rely on the rating agencies. Catch twenty two.

glenlloyd's picture

I don't understand why people come back to the trough and buy these POS securities.

So since S&P won't rate it we assume it must be junk...which it prolly is.

Smells like securitization wants to go back to playing the same game it did before.

JP McManus's picture

I'd have to read the entire securitization prospectus before I draw any conclusions, but a 20% credit enhancement requirement sounds nasty.  I wouldn't want to own the underlying paper.

slewie the pi-rat's picture

speaking of "fighting back", in Thomas Mountain: Lies of the Libyan War

we have some morning medicine for the mainstream prop wash (Paste):

Only 110 dead in Benghazi? Wait a minute, we were told thousands had died there, ten thousand even. No, only 110 lost their lives including pro-government people.

No rapes, no African mercenaries, no helicopter gun ships or bombers, and only 110 ten deaths prior to the launch of the NATO bombing campaign, every reason was based on a lie.

Today according to the Libyan Red Crescent Society, over 1,100 civilians have been killed by NATO bombs including over 400 women and children. Over 6,000 Libyan civilians have been injured or wounded by the bombing, many very seriously. (EndPaste; emph. mine)

and morgan strong's summary in the tripoli post finishes with a slewie-like friendly pat on the back to the fuking shitforbrained Nannies @ the ICC, as they do the bidding of the EU powers and "keep the pressure on" the moQ (Paste):

The court warned that the arrest of Mr. Al Qathafi so that he could stand trial for war crimes was non-negotiable. No agreement that allowed Mr. Al Qathafi to live out his life in peace and quiet could cancel the obligation of countries like Britain and France to ensure that the ICC’s arrest warrant is executed.

The court’s warning is likely to reinforce Mr. Al Qathafi’s stubborn personality and his inclination to stick to his guns at whatever cost. That does not bode well for a resolution of the conflict any time soon.

In fact, it may well help to make the irony of the need for humanitarian help for Al Qathafi-held areas of Libya that result from the international community’s own actions a reality.

illyia's picture

Amazing the disinterest. Had this happened 2.5 or (just can't imagine) 5 years ago - such an uproar. Today? Uh...

And, who the hell cares about these stupid, self-serving politicians!

Obama heil? Who cares? Bohner? Cry me a river. I do not care about these self interested people. They do not matter. I do not care if they live or die - actually, it would be nice if they would all vanish.

I do care about what they do and how it effects my country; but that's it. So far they ALL are acting like absurd, destructive, self-centered, ignorant fools. All the adults are home filling up their cellars with stores or leaving the country. The blow hards in DC are pissing into the wind - just like Rome.

Inmates are now in charge and they have their cheerleaders, but they are all in a place growing darker every day.

qing's picture

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PulauHantu29's picture

I am so proud of S&P. They are geting their credibility back....getting their Five Star MoJo back finally!

karmete's picture

Well done! Thank you very much for professional templates and community edition sesli siteler sesli sohbet

chinawholesaler's picture

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