Capital Markets

Tight Credit Market Bites S&P

S&P's parent company McGraw-Hill reports a dim fourth quarter highlighting the effect of subprime on the credit rating agency.
Kate PlourdJanuary 24, 2008

McGraw-Hill’s quarterly earning release Thursday shows that not even credit rating agencies are protected against losses from the subprime mortgage meltdown.

The information services company, which owns Standard & Poor’s, reported a 31 percent drop in net income and a 1.5 percent falloff in revenue for its most recent quarter, with the hardest hit coming to its financial services unit.

Financial services suffered a 7 percent revenue decline. That was doubled with a 14 percent drop in revenue for S&P’s credit market services, which the company attributes to a significant slowdown in demand for forms of debt now widely viewed as unsafe. The company issued 75.9 percent fewer mortgage-backed securities and 73.5 percent fewer collateralized debt obligations (CDOs) compared to the same quarter last year.

“The results of S&P’s credit market services for the year underscore the solid growth in the first three quarter of 2007 and the impact of a significant decline in the transaction-oriented structured finance market in the fourth quarter,” McGraw-Hill spokesman Frank Briamonte told

CEO Harold McGraw painted a rosy picture for the year to come. In a conference call following the release, McGraw said he expects 2 percent to 4 percent growth in the company’s financial service division in the next year despite the recent flog, Reuters reported.

“As that liquidity freeze begins to thaw and confidence returns, the market will find some firmer footing in the latter part of 2008,” McGraw reportedly said during the call.

The extent of the subprime catastrophe’s effect on credit rating agencies may become still clearer this month. Fitch Ratings declined to comment on the subject until its earnings report is released on January 30. Moody’s did not return a call at press time; its earnings will be announced on Feb. 7.