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Standard & Poor's won't be drawn on whether it may have been misled by SCF, says not auditor or investigator

Standard & Poor's won't be drawn on whether it may have been misled by SCF, says not auditor or investigator

Standard & Poor’s, which had an investment grade rating on South Canterbury Finance (SCF) when it entered the Crown retail deposit guarantee scheme in 2008 and whose BB rating helped enable SCF to enter the extended scheme, says it’s watching developments around the company with interest.

The Serious Fraud Office (SFO) last week revealed it was investigating a handful of SCF related party transactions dating from 2005 to 2009. And SFO chief executive Adam Feeley told if the SFO concludes SCF did commit fraud, Treasury – as the Government’s supervisor of the retail deposit guarantee schemes, may be viewed as a victim. SCF collapsed into receivership on August 31 triggering a NZ$1.6 billion taxpayer funded payout under the retail deposit guarantee scheme.

SCF had a BBB- investment grade rating from S&P when it entered the initial guarantee scheme in late 2008 and a BB rating, the minimum required for acceptance into the extended scheme, when it was approved on April 1 this year.

Asked whether the international credit rating agency had any concerns that it might have been misled by SCF when carrying out its ratings work on the finance company, an S&P spokeswoman said the SCF developments were being watched with interest.

'(But) it's not appropriate for us to speculate on the outcome of the SFO investigation, and at this stage fraud hasn't been proven," she said.

"That said, S&P’s ratings opinions are the result of our best efforts to analyse information from issuers and other sources. It is not, and never has been, S&P’s role to conduct 'due diligence' on information provided, in good faith, by issuers. Ratings firms are not auditors or investigators."

On May 28, less than two months after SCF was approved for the extended guarantee which started on October 12 nearly a month and a half after SCF's receivership, S&P downgraded the lender's long-term credit rating two notches to B+ from BB citing liquidity problems. This was the same day SCF announced its majority owner Allan Hubbard, placed under government imposed statutory management just under a month later on June 20, would step down as chairman and a director.

The SFO is undertaking a separate investigation of other Hubbard associated entities, Aorangi Securities and Hubbard Management Funds, with a decision on whether charges are laid or the investigation closed due within a few weeks.

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"we didn't do due diligence". should be followed by, "but seeing as we were so wrong, we will refund any and all fees we took"


i'm sure that press release will come out tomorrow....

OK .. so now we are thoroughly and fully informed what they "don't do" but leaves us curious what processes they "do perform" to satisfy themselves the nonsense that is placed in front of them is authentic and has some basis in fact. We await the second chapter of your article Gareth Vaughan, or is this merely a self-serving press release. It's one-sided PR spin. Why publish it?

No, it's not a press release or one sided PR spin. Nor was it particularly designed to be a story about what credit ratings agencies do, or don't do, although that is worth looking at separately in more detail...

  This particular story came about because I thought it was worth asking S&P the question as to whether they were concerned they might have been misled by South Canterbury Finance given SFO CEO Adam Feeley's comments that Treasury was potentially a victim of fraud.

If Treasury was misled, it follows that S&P might believe it was too.

The Americans trusted the rating agencies and have lost immense wealth.

They trusted the investment banks and have lost immense wealth.

The lessons are there for everyone to learn, but we don't want to learn these lessons.

We are again going to the same investment banks to sell SCF. 

Wonder what is the real deal on the fees ?

From Denninger Bill Black on the fraud

in my buisiness dealings i dont trust anyone which means i am pretty scared sometimes.   But it just seems commonsense that when it comes to money you have to do more than just ask for the freeking brochure and read the papers.    I assumed these rating agencies did have auditors and investigators to be so powerful.      The banks had the advantage that they knew nobody ever came around looking at their operations and they could therefore say whatever the hell they wanted.    Nobody can know what the real position of these operations is with such pathetic oversight and regulation.

Well said mate - if it's my money, I make sure to do my own due diligence. It's never going to be 100%, but no-one has a more vested interest in making sure my money is safe than me!