Have you guys read S&P response to the Justice Dept.'s lawsuit? Quite interesting and might I add bullish
Paras. 200- 269 – S&P
“knew” that RMBS going into
CDOs issued in March - June
2007 were about to be
downgraded and did nothing
► From March - July 2007, S&P had taken rating actions on more than 500 U.S. Subprime RMBS
classes. As a result, S&P required added protection for any CDO containing those classes.
► In July 2007, S&P took rating actions on approximately 1000 additional U.S. Subprime RMBS
► Only one of the CDOs the government identifies from the March - July time period was
negatively affected by the RMBS rating actions taken in July, because the deals were rated with
enough protection to absorb those rating actions.
► Therefore, any internal debate or discussion considering potential ratings actions in July had no
effect on the CDOs the DOJ identifies and are irrelevant to the argument.
11 of the CDOs that DOJ says
“affected” Citibank or Bank
of America were arranged by
the same institution.
► DOJ is making the absurd contention that Citibank and Bank of America were harmed by S&P’s
ratings on CDOs that they themselves arranged and purchased.
► The DOJ is seeking penalties from S&P for losses allegedly incurred by Citibank and Bank of
America on CDOs where the banks played both sides of the transaction.
Para. 144 – DOJ claims that
the loss of a deal due to
criteria caused a change in
the LEVELS model.
► The email cited has nothing to do with the LEVELS model.
► The DOJ has strategically placed this paragraph in order to lead the reader to conclude that the
email cited has something to do with the LEVELS model.
► In fact, the non-US RMBS deal mentioned in the email did not involve the LEVELS model.
► Further, S&P’s criteria were significantly more conservative than other rating agencies which
played a major role in S&P’s loss of the business.
Para. 211 – DOJ claims that a
surveillance executive was
“prevented” from taking
downgrades by Tom Gillis.
► It’s simply not true and the DOJ’s own complaint shows this:
► Para. 211 does not cite any email or other evidence in support of the claim that Gillis
“prevented” Executive F from taking downgrades.
► A few paragraphs later, DOJ cites an email from February 2007 written by Executive F which
states the opposite: Gillis urged Executive F to begin discussing taking action on poor
► This contemporaneous document, also cited by DOJ, shows that Mr. Gillis in fact was urging
that negative actions be taken and spurring the work necessary for the analysts to accomplish
Paras. 158-169 – DOJ claims
that an S&P executive
proposed changes to the
CDO model that were
motivated by market share:
► The DOJ argues in Paras. 158 - 168 proposed changes to the CDO model and the alleged profit
motive of the alleged “Overall Approver” of the model.
► Then, in Para. 169, it concedes that the proposal was ultimately never implemented because
the analysts concluded that it was not analytically appropriate.
► The DOJ’s own language demonstrates that it is fully aware of the fact that the proposed
model was not deemed analytically appropriate.
Para. 275 –DOJ states the
affected institutions suffered
losses “in excess of $5
► The DOJ does not provide any clarity on its method of calculating the damages being sought.
► The $5 billion-plus figure demanded in the complaint is clearly disproportionate to the $13
million in revenue received by S&P for rating the CDOs cited.
The above page was copied from S&P website under the heading "The DOJ Complaint Re Standard & Poor’s: The Facts"
After reading their defense, I'm more convinced than ever that the DOJ doesn't stand a chance. I was very worried about the DOJ's allegation that S&P gave AAA ratings to a bunch of CDO's in June and then downgraded them all in July, but it turns out that only ONE out of the 1000 CDO's was downgraded later on, most likely due to the severity and rapid onset of the housing collapse and foreclosures, ARM's resetting, etc.. This is extremely important because that was the evidence that was supposedly the most incriminating. Turns out the DOJ has no real evidence other than a bunch of jokes from former employees. Please read my last post and you'll know the real deal.
The U.S. Justice Department this week filed civil charges against S&P, accusing the rating agency of refusing to warn investors that the housing market was collapsing in 2006 because it would be bad for business. The department is seeking $5 billion in penalties. ........... Looks like S&P forgot they were warned by the Justice Dept to warn investors the housing market was collapsing in 2006, those investors were also Banks who were not informed by S&P, but the Government can point out a 2 trillion dollar mistake to S&P when the downgraded the U.S ratings and S&P has never annouced they would correct thier mistake and stand behing thier downgrade because they FEEL its RIGHT. A mistaken report should of been annouced by S&P that it was being pulled but they didnt. S&P thinks they have the right to do whatever they want even if thier wrong.