S&P faces inquiry over US downgrade

Regulators are examining the models used by Standard & Poor's after the US government accused the ratings agency of a $2 trillion (£1.2 trillion) error when it downgraded America. http://www.telegraph.co.uk/finance/financialcrisis/8699245/SandP-faces-inquiry-over-US-downgrade.html#.TkZStZHFU5w.facebook

By Richard Blackden

The inquiry is reported to be part of a broader look at McGraw-Hill, S&P's parent company, by the Securities and Exchange Commission.

S&P's decision to strip the US of its AAA rating late on the evening of August 5 prompted a furious exchange between the US Treasury and the agency.

The Treasury, which had been sent S&P's press release on the afternoon of the 5th before it was due to be released later that day, accused analysts at S&P of a "basic math error" that led to the downgrade.

S&P said that the $2 trillion difference in future projections for the deficit was because it and the Treasury were using figures from the Congressional Budget Office to calculate the trajectory for the shortfall over different time frames.

The agency eventually went ahead and cut the US long-term credit rating to AA+ for the first time in its history. Moody's and Fitch, the rival rating agencies, have kept it at AAA.

The SEC is also said to be looking at who knew about the decision to cut the rating before it was made public amid speculation that it was leaked earlier in the day.

A spokesman for S&P said the company's policies "prohibit analysts or rating-committee members from trading and holding securities or options of the companies or governments they rate".

Although many investors had expected S&P to cut its rating, the decision contributed to a second week of volatile trading in stock markets across the world. It also led to speculation that other countries could follow.