S&P president steps down after political backlash

Date: Wednesday, August 24, 2011
Author: Louise Armitstead, The Telegraph

Standard & Poor’s was accused of being influenced by the political backlash over its downgrade of America’s credit rating, after it announced the departure of its president.

The ratings agency, which is owned by US-listed McGraw Hill Companies, said Deven Sharma would leave at the end of the year to "pursue other opportunities". He will be replaced by Douglas Peterson, a veteran banker from Citigroup.

On August 5 S&P downgraded America's AAA credit rating to AA+ for the first time in history, claiming that the country had failed to meet its targets for reducing its budget deficit.

One analyst said: "Sharma has been praised for taking on S&P in the wake of the financial crisis. Of course no one stays at a company forever but the timing of this looks awful. It's little wonder that investors reckon the company has been leaned on by Congress."

Noel Herbert, a credit strategist at Mitsubishi UFJ Securities in New York, added: "It looks like he's being helped out the door. If it was a planned retirement, it should have been handled in a different way."

Harold "Terry" McGraw, chairman and chief executive of S&P's parent company, said in a statement: "Deven assisted us with the creation of these two high-growth segments and was then ready for new challenges. Accordingly, we began a process to identify a new leader for S&P."

S&P stuck to its downgrade decision even after the US Treasury Department pointed out that the company had overestimated America's national debt figure by $2 trillion (£1.2 trillion).

The company refused to reverse its decision because it said the downgrade was not based on debt levels alone but on its view that the US government had become "less stable, less effective and less predictable".

The new rating puts the US on the same level as Belgium, which hasn't had a government since June 2010, and New Zealand, and above Japan and China.

Separately, two of McGraw Hill's biggest shareholders have demanded that the company break itself up into four parts because it had "underperformed its potential".

Jana Partners, a US hedge fund, and Ontario Teachers' Pension Plan, one of the world's biggest pension funds, laid out their proposals in a statement filed with the Securities & Exchange Commission on Monday night.

The investors, who together own a 5.2pc stake in McGraw Hill, said the company was trading at a "sizeable discount" that could be closed if it were broken up. The four sections are: S&P, the S&P index business, information & media, and education. The investors also called for a big share buyback.

A spokesman for McGraw Hill said: “McGraw-Hill enjoys an open dialogue with its many shareholders and often gets insights from those discussions. While not commenting on specific discussions, McGraw-Hill’s portfolio review is well advanced and expected to result in significant actions in the next few months to accelerate global growth, align appropriate cost structures and build shareholder value."