S&P boss acknowledges criticism
It may take as much as two or three years for major ratings houses to make up lost ground with respect to the structured finance business, according to the president of Standard & Poor’s, Deven Sharma.
Sharma told a Reuters Investment Outlook Summit in New York that to make up for lost revenue, S&P would be looking for growth in emerging markets such as Asia, the Middle East, South Africa and Dubai, as well as new rating business in the loan market.
“Will new business completely make it up?” Sharma asked. “It will be in the order of a few years and the business will not be recouped this year.”
Sharma also sought to defend the role of ratings houses in the sub-prime meltdown but said he understood the criticism of agency rating methods, albeit that their assumptions of a 5 per cent housing price decline in 2004 and 2005 had been widely shared.
He said that few analysts could have predicted the 20 per cent declines that struck the US housing market and that, additionally, many investors just did not understand what a top AAA rating meant for structured finance products, which were complex repackaged bonds.
AUTHOR
Mike Taylor
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