Known for outspoken views on market imbalances
Deven Sharma (55), Indian-American president of credit rating agency Standard & Poor's, has resigned less than three weeks after his company found itself at the receiving end of the Obama administration's ire following its downgrade of the United States' credit rating from AAA to AA+.
S&P's announcement, that Mr. Sharma would be stepping down immediately and leaving the company at the end of the year, also follows reports last week that the U.S. Justice Department had initiated an investigation into the mortgage securities ratings allocation process at the McGraw-Hill subsidiary. In particular, authorities were said to be examining whether S&P “improperly rated dozens of mortgage securities in the years leading up to the financial crisis.”
S&P's downgrade of the U.S.' debt from AAA to AA+ on August 5, based on its perception that the deficit reduction measures agreed by the administration were insufficient to stabilise national debt, saw further market turmoil in its wake as the downgrade triggered a massive global sell-off.
Credit ratings allocation, which yielded enormous profits in the boom years to the major agencies including S&P, Moody's and Fitch, have come under fire from regulators for their role in fuelling the financial markets collapse in 2008. The U.S. Congress and White House have both challenged S&P's “secretive process, its credibility and the competence of its analysts.”
In this week's announcement, S&P said Douglas Peterson (53), chief operating officer of Citibank N.A., would be its next President effective September 12, while Mr. Sharma “will take on a special assignment working on the Company's strategic portfolio review,” until the year's end.
Mr. Sharma's resignation also marks intensifying woes faced by the McGraw-Hill Group internally, with activist investors demanding stridently to break up the media conglomerate into four parts including splitting up the S&P into its indexes operations and ratings and financial business, reports said.
In announcing the change, Harold McGraw III, Chairman, President and CEO of the McGraw-Hill Companies said, “I particularly want to thank Deven for his dedicated leadership of S&P. Four years ago, in one of the most difficult times facing S&P in the midst of the financial crisis, I turned to Deven whose background as head of S&P's Investment Services, head of McGraw-Hill's Global Strategy and as a partner at Booz Allen & Company, brought the right kind of skills to address the situation.”
Mr. Sharma was however known for his outspoken views on imbalances in the market, for example saying last month to members of the House of Representatives Committee On Financial Services that, “The independence of rating agencies to develop their own methodologies, rather than be pushed by regulation toward a common methodology, mitigates the systemic risk that ratings could become indistinguishable from agency to agency.”
He had further warned that it was critical that new regulations preserved the ability of credit rating agencies “to make their own analytical decisions without fear that those decisions will later be second-guessed if the future does not turn out as anticipated or that, in publishing a potentially controversial view, they will expose themselves to regulatory retaliation.”