Call for ANC to sue rating agencies 'silly and a waste of time'

Cape Town - Moody's stands behind the integrity of its ratings, methodologies and processes, and a settlement with the US Department of Justice contains no finding of any violation of law, nor any admission of liability.

The US Justice Department and 21 states accused the company of inflating ratings on mortgage securities which were at the centre of the 2008 financial crisis.

The rating agency referred to this statement - issued at the time of the US settlement - when Fin24 requested comment on the latest allegations by the Progressive Professionals Forum (PPF), led by Mzwanele Manyi.

The ANC must sue rating agencies Moody's and S&P Global Ratings for the impact their ratings have had on the SA economy and furthermore establish a Brics rating agency this year, the PPF said on Monday. With its latest statement the PPF has joined top ANC officials and the ANC Youth League (ANCYL) in expressing harsh criticism of rating agencies.

Last week the ANCYL said the SA government must bar Moody's from setting foot in SA. Moody's currently has South Africa two notches above junk status along with a negative outlook.

Earlier this month, Moody’s agreed to pay almost $864m to resolve a US investigation into credit ratings on subprime mortgage securities.

READ: Moody’s must stay away from SA - ANCYL

The PPF also wants the ANC government to take certain steps against the rating agencies. The PPF wants the ANC to investigate the extent to which the agencies have contributed to SA's economic challenges and open a civil case against them to recover the costs.

The PPF also wants the ANC to suspend these rating agencies from rating SA until such time that the civil matter has been resolved and costs recovered.

According to the PPF, rating agencies are "colonial instruments used by global monopoly capital to whip developing countries and former colonies into line, so that countries adopt and implement programmes that suit the agenda of the global capital, as opposed to those whom developing countries are expected to by their voting populace".

Moody's, however, points out in its statement that the US agreement acknowledges the considerable measures Moody's has put in place to strengthen and promote the integrity, independence and quality of its credit ratings.

In terms of the agreement, Moody's agreed, among other things, to pay a $437.5m civil penalty to the DOJ to resolve potential civil claims asserted under the Financial Institutions Reform, Recovery and Enforcement Act.

"The agreement Moody's made with the US government to resolve pending and potential civil claims related to credit ratings assigned to certain structured finance instruments in the financial crisis era avoided costs and uncertainty associated with continued investigations and litigations. The agreement was deemed to be in the best interest of the company and its shareholders," said Moody's.

Economic view

Economist Mike Schüssler told Fin24 on Monday that it is not wise to sue a rating agency.

"While rating agencies have been investigated by the American Congress over the last few years - and they paid fines - it was that they did not show and perhaps understand all the risks. The change in American laws and in international fund manager mandates mean that funds and rating agencies are more inclined to flag risks than before," explained Schüssler.

"To think that you can sue rating agencies for doing their job as intended by laws governing major pension funds around the world is not only silly and a waste of time, but it is going to get SA noticed in the wrong way."
 
He added that, even if the Brics establish their own rating agency, it is unlikely to wield much influence.

"The vast majority of pension and mutual funds around the world use at least one of the big three rating agencies - S&P; Moodys and Fitch. They are the main ones that funds have chosen and will continue to use. The funds decide whom to use," explained Schüssler.

"A country always tries to sell a good story when talking to the funds' professional staff. To think that some little known outfit with no experience in fund management or in managing information or, in fact, obtaining debt of a country is going to mean anything, is rather slim."

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