Ratings companies, whose scores have helped determine the cost of money for governments and businesses for more than a century, are no longer trusted by the world’s biggest investors, according to the former head of structured finance at Standard & Poor’s.
“They’re there because people have to have them, not because people believe in them,” David Jacob, who was fired from S&P in December, said in an interview at Bloomberg headquarters in New York. “Maybe retail investors do, that’s the unfortunate part, but I think institutional investors don’t.”
S&P President Douglas Peterson said at a meeting of the Institute of International Finance in Copenhagen on June 6 that ratings companies help ensure that bond issuers provide “transparent information” under “strict standards of governance and control.”
Jacob may be criticizing the firm because of his dismissal, Peter Appert, an analyst at Piper Jaffray & Co. in San Francisco, said in a telephone interview.
While Moody’s now has the banks rated an average four levels lower than at the height of the financial crisis, investors see the lenders as more creditworthy. Yields on their bonds fell to an average 3.77 percent as of yesterday from 8.46 percent in October 2008, Bank of America Merrill Lynch index data show.
That hasn’t stopped the world’s third-wealthiest man from appreciating the profit opportunities. Berkshire is Moody’s biggest shareholder with a 13 percent stake valued at about $1 billion.