Lawmaker probing if Treasury meddled in S&P rating

WASHINGTON Wed Jul 27, 2011 8:09pm EDT

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WASHINGTON (Reuters) - A congressional panel is examining whether the Obama administration tried to unduly influence Standard & Poor's before the credit rater revised its outlook on the debt rating to negative.

Randy Neugebauer, the Republican chairman of a House oversight panel, said on Wednesday his staff is probing whether Treasury tried to make material changes to a draft of S&P's news release announcing the negative outlook revision in April.

"Our concern was if the administration was trying to influence this rating decision some -- above what would be a normal practice," Neugebauer told reporters after a hearing examining oversight of the credit rating industry and the role the raters are playing in U.S. debt talks.

S&P has been the most aggressive of the "big three" credit rating agencies in threatening to downgrade the United States' triple-A rating unless Congress agrees to a credible and meaningful deficit-reduction plan.

U.S. lawmakers are trying to reach a deal by August 2 to both raise the $14.3 trillion U.S. debt limit and lay out an aggressive framework to cut federal spending.

The House Financial Services oversight subcommittee on Wednesday released a trove of emails between top S&P sovereign credit analysts, S&P President Deven Sharma and senior Treasury officials, including the department's assistant secretary for financial markets, Mary Miller.

A review of the emails by Reuters shows efforts by S&P and Treasury officials to hold discussions ahead of the outlook review. They also show an interest by Treasury in obtaining a draft copy of S&P's press release.

There was no indication in the emails that Treasury was unhappy with the review or tried to influence the press release.

Although it is customary for rating agencies to talk to their issuers, Republicans said they had concerns the Obama administration may have gone too far.

The Treasury had no immediate comment.

S&P is a unit of McGraw-Hill Cos Inc.

ADVANCE PEEK

Emails dated March 22 show extensive efforts by S&P and Treasury officials to coordinate on times to talk about the Obama administration's budget strategy before the credit rater's committee met to discuss the U.S. rating.

An early April 15 email shows Sharma telling Treasury's Under Secretary Jeffrey Goldstein that he received his message and that he would give him a call.

A mid-afternoon April 15 email shows S&P's global head of sovereign ratings, David Beers, asking Miller, Goldstein and Deputy Assistant Secretary for Federal Finance Matthew Rutherford, when it would be convenient to call about the rating agency's decision.

Later that day, Miller asks Beers if S&P was planning on sending Treasury a draft press release and said, "It would be helpful to take a look at that in advance."

S&P issued its press release on April 18.

During Wednesday's hearing, Sharma told lawmakers that it was common practice for rating agencies and issuers to eye each other's press releases to ensure accuracy.

"We believe that is an appropriate process," Sharma said.

Moody's Global Managing Director Michael Rowan also said his company has a similar procedure.

But Neugebauer said his staff was still sifting through the documents and looking into "whether Treasury influenced what that press release said."

"The gentleman (Sharma) said today that basically that is a common practice. What we don't know is the details" and whether "there were material changes made to the press release," Neugebauer said.

(Reporting by Sarah N. Lynch and Rachelle Younglai; Editing by Tim Dobbyn)

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