Ratings Deceit: S&P sued for deceitful CDO ratings

Royal Park Investments, the bad bank of Fortis, has filed a lawsuit against American credit rating agency Standard & Poor’s. Royal Park Investments claims damages of 5.1 billion dollars (4.8 billion euros).

The information about the summons of three Standard & Poor’s (S&P) group companies before a court in the Cayman Islands can be found on the website of the Cayman Compass newspaper and a specialized website on finance and tax havens. De Tijd received the information confirmed.

The lawsuit has to do with investments of the former Fortis Bank (now BNP Paribas Fortis) in structured credit. When Fortis threatened to collapse in 2008 during the banking crisis, one of the rescue measures was to split off a portfolio of such credits that were considered dangerous into a bad bank, Royal Park Investments. It is owned by the insurance company Ageas, as the legal successor of Fortis, the Belgian state and the French banking giant BNP Paribas.

‘Flawed’ reviews

The portfolio ended up with the American investor Lone Star in 2013 , but the lawsuits that Royal Park Investments conducted, especially against banks, lagged behind the Belgian company. All but one of those lawsuits have ended, often with a settlement that earned Royal Park and its shareholders quite a lot of millions . There were also billions in claims.

Royal Park may also aim for a settlement in the new lawsuit against S&P. It argues that S&P produced ‘defective’ ratings for eight CDOs (a form of repackaged credit), in which the Cayman Islands branch of Fortis Bank invested in 2006 and 2007.

The subpoena alleges that the CDO rating model used by S&P was materially flawed, resulting in higher credit ratings. Without those flaws, the ratings would have fallen well below the top score of AAA and Fortis would not have invested in them, the argument goes.

Royal Park Investments chose not to comment.

Translated from De Tijd; see also OffShore Alerts