S&P loses landmark Australian court case on complex product ratings

Ratings agencies across the globe could come under legal pressure after Standard & Poor’s lost a landmark Australian court case on the ‘misleading’ way it rated complex financial products just before the credit crunch.

S&P, along with ABN Amro, were sued by 12 New South Wales councils which claimed the misleading conduct cost them more than $16 million.  The councils had invested in constant proportion debt obligations (CPDOs), which lost around 90% of their value during the crisis.

The Federal Court ruled that S&P was ‘negligent’ and Justice Jayne Jagot said no competent ratings agency should have given the products such high ratings.

The implications of the 1459-page decision could be wide reaching and could draw in rival ratings agency Fitch and Moody’s. The UK, USA, New Zealand and Netherlands are expected to launch similar lawsuits against S&P.

According to reports S&P plans to appeal and dismissed ‘any suggestions our suggestions were inappropriate’.