Welcome to Manifest-I

Welcome to Manifest-I the blog of Manifest Information Services Ltd. Here we take a wide ranging view of topical governance and stewardship issues. Please feel free to add your comments and join the debate. Sign up to receive free weekly updates.

Manifest is a signatory of the Best Practice Principles for Shareholder Voting Research

Delivering Diverse Viewpoints

In the pursuit of secure investment returns, diverse viewpoints based on high-quality data and varied information are critical for portfolio construction. We believe that share ownership is no different. Manifest intelligently navigates the complexities of global governance and voting delivering actionable and defensible stewardship insights.

Manifest: showing, not telling

Get in touch to find out more about Manifest's governance research, data and advisory services

US pension fund adds to credit rating agency woes

Five of Ohio’s public pension funds have joined California in pursuit of recompense from the three dominant credit ratings agencies (CRAs), Standard & Poor’s, Moody’s and Fitch. Ohio’s Attorney General, Richard Cordray estimates that the five funds involved in the case lost more than $457 million from investing in triple-A rated in mortgaged backed securities.

In court documents filed on November 20th, Cordray alleges that the rating agencies inflated ratings of high-risk mortgage backed securities in order to boost profits. Cordray cites the evidence which emerged during a series of US governmental investigations which suggested that rating agency executives and analysts continued to issue inaccurate ratings despite knowing their their methodologies were flawed. The SEC and US Congress are now considering a new regulatory environment to ensure that CRAs become more transparent and accountable

Commenting on the case Corday said: “The rating agencies were central players in causing the worst economic crisis in Ohio since the Great Depression. The rating agencies assured our employee pension funds that many of these mortgage-backed securities had the highest credit ratings and the lowest risk. But they sold their professional objectivity and integrity to the highest bidder.”

The five funds acting as plaintiffs are the Ohio Public Employees Retirement System (OPERS), the State Teachers Retirement System of Ohio, the Ohio Police & Fire Pension Fund, the School Employees Retirement System of Ohio and the Ohio Public Employees Deferred Compensation Program.  “This is a fiduciary responsibility that the board takes very seriously,” Cinthia Sledz, chair of the OPERS board’s proxy policy and corporate governance committee, said in relation to the action. “And it is consistent with past actions the board has taken to encourage corporate governance reform and to seek compensation for unlawful behavior.”

According to comments to Associated Press the CRAs intend to defend the case vigorously:”We believe the (Ohio) claim has no legal or factual merit” said Steven Weiss, vice president of corporate communications for McGraw-Hill. Moody’s also said Cordray’s lawsuit had no merit. “Our ratings were and continue to be based on clearly defined and publicly disclosed methodologies,” said spokesman Mike Adler. “It’s unfortunate that the attorney general, rather than engaging in an objective review and constructive dialogue regarding credit ratings, appears to be seeking new scapegoats for investment losses incurred during an unprecedented global market disruption.”

Ohio’s Cordray has been particularly active in in recovering funds for the state’s funds and has eight major lawsuits to his credit. According to Cordray’s website these have recovered more than $2 billion to date including $284.5 million in a case involving AIG; $400 million with Marsh & McLennan; $475 million with Merrill Lynch; and the cancelling of $922 million stock options grants to executives at UnitedHealth. Ohio Funds are also involved in several major securities cases, including class action securities lawsuits against AIG, Bank of America, Fannie Mae, and Freddie Mac.

Links

Ohio Attorney General’s Office >>

Rating Agencies Complaint >>

New York Times >>

What do you think?