Econintersect: Earlier today GEI News reviewed the possibility that the U.S. Department of Justice was about to file a civil fraud suit against Standard and Poor's. After that report was posted the suit was filed, with the federal government joined by six states (California, Connecticut, Delaware, Illinois, Iowa and Mississippi) plus the District of Columbia. In the earlier article GEI News discussed the amount os settlement that had been discussed last year ($1 billion) and the financial difficulty that amount posed for the S&P parent corporation McGraw-Hill Companies (NYSE:MHP).
The damages sought in the suit filed today total $5 billion. This poses an extreme challenge to the contuinued operation of McGraw-Hill should the court award that amount. From the previous GEI News article:
On their 29 September 2012 financial statement, the McGraw-Hill balance sheet shows a net worth of $2.6 billion. (McGraw-Hill (NYSE:MHP) is the parent of S&P.) It is not at all likely that amount would be recovered in liquidation because it undoubtedly contains totally illiquid "assets" such as good will. The same balance sheet gives net tangible assets as minus $1.8 billion. Net income for the last four quarters is listed on the company's income statement as $0.9 billion. The cash flow statement shows a net change in cash flow over the past four quarters of minus $0.2 billion.
If S&P was subjected to judgements of just a few billion dollars, a small percentage of losses accrued on MBS they gave overly generous ratings to, where could the money come from? Have you heard the one about blood from a stone?
MHP stock has lost 27% over the past two days, a total of more than $5 billion in market cap.
- S&P: Can It Survive a Suit for Fraud? (GEI News, 05 February 2013)
- U.S. government slams S&P with $5 billion fraud lawsuit (Aruna Viswanatha and Lara Tara LaCapra, Reuters, 05 February 2013)