Standard & Poor’s misled investors by awarding its highest rating to a complex derivative product that collapsed in value less than two years after it was created by ABN Amro’s wholesale banking division, an Australian judge has ruled in a landmark case that paves the way for legal action in Europe.
In a damning verdict, the Federal Court of Australia ruled that S&P and ABN Amro had “deceived” and “misled” 12 local councils that bought triple-A rated constant proportion debt obligations from an intermediary in 2006.
The court said a “reasonably competent” ratings agency could not have given a triple A to the “grotesquely complicated” securities. S&P and ABN’s wholesale banking arm, which is owned by RBS, also published information and statements that were either “false” or involved “negligent misrepresentations”, Justice Jayne Jagot found.
The ruling marks the first time a rating agency has faced a full trial over a structured finance product. It led some investors to reassess their view of the legal landscape for the rating agencies.
In early trading in New York, S&P parent McGraw-Hill fell more than 5 per cent, versus a broadly flat equity market. Moody’s fell more than 2.5 per cent. – (Copyright The Financial Times Limited 2012)
