Attorney General Eric Holder speaks at the Justice Department in Washington, Tuesday, Feb. 5, 2013. The U.S. government accused Standard & Poor's of inflating ratings on mortgage investments to boost its bottom line, taking aim at a key player in the run-up to the financial crisis. (AP Photo/Jacquelyn Martin)
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Attorney General Eric Holder speaks at the Justice Department in Washington, Tuesday, Feb. 5, 2013. The U.S. government accused Standard & Poor's of inflating ratings on mortgage investments to boost its bottom line, taking aim at a key player in the run-up to the financial crisis. (AP Photo/Jacquelyn Martin)
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FILE - This Oct. 9, 2011 file photo shows 55 Water Street, home of Standard & Poor's, in New York. S&P said Monday, Feb. 4, 2013, the U.S. government is expected to file civil charges against Standard & Poor's Ratings Services, alleging that it improperly gave high ratings to mortgage debt that later plunged in value and helped fuel the 2008 financial crisis. The charges would mark the first enforcement action the government has taken against a major rating agency involving the worst financial crisis since the Great Depression. (AP Photo/Henny Ray Abrams, File)
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FILE - In this April 10, 2012 file photo, a McGraw-Hill Companies building is shown in New York. Standard & Poor's, a division of McGraw-Hill, says the government plans to file a lawsuit alleging wrongdoing by the agency when it gave high ratings to mortgage-backed securities that later plunged in value and fueled the 2008 financial crisis. S&P said Monday, Feb. 4, 2013, that it has been told by the Department of Justice that it intends to file a civil lawsuit focusing on S&P's ratings on some mortgage-backed securities in 2007. (AP Photo/Mark Lennihan, File)
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In this Wed. Dec. 5, 2012, photo, containers are unloaded from cargo ships at the Port of Los Angeles. Most economists agree that the snapshot of U.S. economic growth released Wednesday, Jan. 30, 2012, is going to look dismal. (AP Photo/Nick Ut)
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In this Wed. Dec. 5, 2012, photo, containers are unloaded from cargo ships at the Port of Los Angeles. The U.S. economy unexpectedly shrank from October through December, the first quarterly drop since 2009 and a reminder of the economy's vulnerability as automatic cuts in government spending loom. (AP Photo/Nick Ut)
Fitch lowers rating on McGraw-Hill
NEW YORK (
AP) —
Fitch Ratings on Thursday downgraded The McGraw-Hill Companies Inc. and put it on watch for possible further downgrades due to the lawsuit filed by the Obama administration against its S&P subsidiary.
The Justice Department on Tuesday filed a civil suit accused Standard & Poor's credit rating agency, a unit of McGraw-Hill, of failing to warn investors that the housing market was collapsing, because doing so would be bad for business. It claims S&P knowingly inflated ratings for risky mortgage investments and helped trigger the crisis. The suit demands $5 billion in penalties.
Fitch lowered McGraw-Hill's issuer default rating a notch in investment grade status to "BBB+" from "A-." It also placed the company's ratings on watch negative.
The rating agency said a regulatory or litigation-related risk has been historically incorporated with the ratings, but the Justice Department's recent actions have heightened the risk to the point it merited a ratings change.
Fitch said there is still the risk of related state attorney general lawsuits and other suits. Although the agency believes that the company has enough financial flexibility to absorb a material negative financial outcome from the DOJ suit or other lawsuits and keep investment-grade ratings.
Experts said the lawsuit could serve as a template for future action against Fitch and Moody's, the other two major credit rating agencies. High ratings from the three agencies made it possible for banks to sell trillions in risky investments. Some investors, including pension funds, can buy only securities that carry high credit ratings.
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