The Ratings Blame Game


Turmoil in the financial markets has the fingers of blame pointing every which way. That includes at the rating agencies -- blamed for making downgrades too soon, or not soon enough.

In a first on CNBC interview Jay Dhru, Standard and Poor's head of financial institutions ratings landed squarely in Dylan Ratigan's sight.

Following are pieces of the conversation.

Dylan Ratigan: The rating agencies were directly complicit in the creating of the securities that... now are like a 2-year old with a bazooka, blowing people’s heads off. Why have you made this decision?

Jay Dhru: What decision are you talking about?

Dylan Ratigan: The decision to force massive financial institutions to come up with nearly $100 billion in a matter of days.

Jay Dhru: It would be helpful to step back and focus on what our role is. We are focusing on credit worthiness of entities. We’re not making investment advice…

Dylan Ratigan: We understand that. But I asked the question because the securities that you and your institution deemed very credit worthy… as it turns out you were wrong sir. These are not triple A credits or double a credits.

Jay Dhru: Well there’s a lot of factors going on. The key is that there’s a lot of volatility in the market and what we’re looking to do is reflect that in the credit worthiness…

Dylan Ratigan: Understood. But are you aware of everything that’s going on when you make the decision to exacerbate an already distressed situation?

Dhru: I appreciate the opportunity to comment on that… the perception in the market is that there is tremendous volatility. The fundamentals don’t matter. There is hysteria…

Dylan Ratigan: But you’re not answering my question. There’s an interest of making the decision to call the securities that you approved and rated as triple A. And now you return to indict the securities you deemed to be credit worthy at the expense of the entire financial system...

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Jay Dhru: That’s why we need to focus on what is the impact on the financial institutions we are rating. And that is where our actions have been. The actions we took on Bank of America and AIG have been focused on what is the impact on those entities of a number of different factors going on in the market. And from AIG’s perspective we think the Fed’s move is a helpful one.

Dylan Ratigan: You forced it! Well not you, personally, that’s not fair. But the ratings agencies decision to do what they did this week created the need for financing.

Jay Dhru: I don’t think that’s accurate. I think what we did. We looked at all the information that was out there, qualitative and quantitative; market sentiment as well as fundamentals and we made the decision based on what was out there. So I think the characterization that you made is not accurate.

Maria Bartiromo: Well, then let’s talk about the fundamentals. Take us through specifics as to how you gauge the health of these companies. For example there was a moment in time when you an your colleagues decided to incorporate a company’s stock price as part of the health of that firm. If the stock price is higher there’s more health in the firm. That doesn’t sound logical to me… tell us exactly what measures you’re using.

Dhru: That is a good question. Clarification is important. Market information plays a role but it’s not the primary role. The primary role is fundamental analysis. Qualitative and quantitative analysis of where we see the business going. Where we see the fundamentals from a profitability, liquidity, financial flexibility stand-point.

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