Days after President Rodrigo Duterte said he does not care about Standard and Poor’s Financial Services LLC (S&P’s) assessment of his administration’s initial performance, a member of the Philippine Congress described the global credit rating agency as “somewhat overrated.”
“While S&P to a certain degree helps fund managers rationalize and feel good about their investments, what the agency has to say about the credit-worthiness of a government or a corporation is far from gospel truth,” Surigao del Sur Rep. Johnny Pimentel, a member of the House economic affairs committee, said in a statement on Monday.
“S&P’s international reputation is no longer the same as before the 2008 global financial crisis. Many investors today rely less on S&P when they decide where to put their money,” Pimentel added.
“I don’t care” was Duterte’s curt answer when he was asked by journalists to respond to S&P’s evaluation that “predictability in policy-making”–one of the considerations in making investment decisions–has diminished under his new administration.
S&P nonetheless affirmed the Philippines’ long-term credit rating of ‘BBB’ (lower medium, investment-grade) and short-term credit rating of ‘A-2’ (upper medium, investment-grade), with a stable outlook.
Pimentel said the New York-based debt watcher got discredited in a big way when it gave ‘AAA’ or prime investment grade ratings to US housing mortgage bonds that turned out to be “junk” instruments of indebtedness.
In fact, he said, S&P paid $1.5 billion last year to settle lawsuits with the US Justice Department, more than a dozen states and the largest American pension fund that accused the financial research firm of inflating its ratings on sub-prime mortgage bonds at the center of the 2008 global financial crisis.
Pimentel added that there were also “glaring instances” in the past wherein S&P recommended certain shares of stocks of companies that later became bankrupt.
He cited the case of Lehman Brothers Holdings Inc., the fourth-largest US investment bank, which collapsed in 2008.
Lehman’s collapse hit three Philippine banks–BDO Unibank Inc., Metropolitan Bank and Trust Co. and Rizal Commercial Banking Corp.– with a combined P7 billion in financial losses because of their direct and indirect exposures in the 158-year-old US investment bank.
Two days before Lehman filed for bankruptcy (and before its shares became worthless), and while the company’s stock was trading at $4, S&P analysts told investors to hold on to their shares on expectations that the stock would rise to a target price of $14, according to Pimentel.
S&P, along with Moody’s Corp. and Fitch Ratings Inc., comprise the so-called “Big Three” global firms that calculate the abilities of governments and companies to pay their debt obligations.