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July 16, 2007
S&P downgrades $6.4bn after sub-prime error
Standard & Poor's last night downgraded sub-prime mortgage backed securities worth $6.4bn (€4.6bn), after it was forced to restate the value of securities at risk in a credit watch announcement made earlier this week.
Last night's rating action saw 498 downgrades on securities worth $5.69bn, while 26 classes remain on credit watch and the ratings on 74 classes were affirmed. The downgrades represent 1.01% of the $565.3bn in US residential mortgage backed securities backed by first-lien sub-prime collateral rated by S&P between the fourth quarter of 2005 and the fourth quarter of last year.
S&P also downgraded another 64 sub-prime securities worth $700m, which were placed on credit watch before Tuesday. About 52% of the $6.4bn in downgraded securities were investment grade.
The downgrades follow a restatement of the value of securities at risk in Tuesday's credit watch, when it said 612 classes of residential mortgage backed securities backed by first-lien sub-prime collateral worth $12bn was at risk of a downgrade. That represented 2.1% of this type of collateral rated by the agency last year.
S&P's error comes at a challenging time for rating agencies, which many in the securities industry believe have been behind the curve in recognizing problems in sub-prime mortgages. The credit markets are highly sensitive to statements about the deteriorating state of sub-prime collateral.
The credit watch notice contributed to a 1.4% decline on the S&P 500 index in the US on Tuesday, credit markets took a beating and the ABX BBB- index of sub-prime securities fell to a new low.
On Wednesday S&P revised its credit watch to $7.35bn of securities, representing 1.3% of collateral.
S&P offered no explanation for the revision made on Tuesday, other than that the amount and percent of affected collateral had been misstated. The list of securities on credit watch did not change.
Moody's also made downgrades yesterday and Fitch Ratings said it may cut ratings on collateralized debt obligations backed by sub-prime securities.
S&P's error follows a more serious retraction by Moody's in April, when it was forced to restate the credit ratings on several banks.
-Financial Times-
Posted by su at July 16, 2007 2:20 PM