UPDATE 1-McGraw-Hill's S&P unit names ombudsman

By Jonathan Stempel

NEW YORK, Jan 7 (Reuters) - McGraw-Hill Cos (MHP.N) on Wednesday named financial services veteran Ray Groves ombudsman for its Standard & Poor's unit, as it pushes to restore confidence in the accuracy of its credit ratings.

The hiring of the former chief executive of the accounting firm Ernst & Young is part of S&P's 27-step plan announced last February to improve the rating process and boost transparency.

Investors, regulators and politicians have faulted S&P, Moody's Corp's (MCO.N) Moody's Investors Service and Fimalac SA's (LBCP.PA) Fitch Ratings for feeding the global credit crisis by assigning inappropriately high ratings to hundreds of billions of dollars of mortgage and complex securities for much of this decade, only to rapidly downgrade the debt later.

The agencies are paid by issuers for their credit ratings, and have announced changes to their methods in the last year.

In his new role, Groves will field complaints from inside and outside S&P, and make annual reports to the public. He will report to Chief Executive Harold "Terry" McGraw and be accountable to the audit committee of McGraw-Hill's board. The appointment is effective Feb. 16.

"It's window dressing, and creates a false sense of security," said Sean Egan, managing director of Egan-Jones Ratings Co, which competes with S&P and is paid by investors rather than issuers for ratings. "The fundamental problems with issuing timely, accurate ratings remain -- unsound ratings have been a major contributor to the economic downturn we're in."

Groves previously worked for 37 years at Ernst & Young, including 17 as chairman and chief executive prior to his 1994 retirement. He was later chairman of Legg Mason Merchant Banking Inc and president of Marsh Inc, the insurance brokerage. Groves was unavailable for immediate comment.

BUDGET DEFICITS HIT TEXTBOOKS

Speaking at a Citigroup conference in Phoenix, which was monitored by webcast, Terry McGraw called the issuer-pays system for ratings "the better model" for improving transparency because S&P publicly releases its rating actions.

He also said McGraw-Hill has considered splitting up or spinning off parts of S&P, which is also known for its market indexes such as the S&P 500 .SPX, but that "when there's so much noise in the air and talking about different models and all sorts of things, this isn't the time to do that."

In December, the U.S. Securities and Exchange Commission ordered greater disclosure about rating processes, and the elimination of some potential conflicts of interest.

Separately, Terry McGraw said McGraw-Hill's largest unit, education, will face pressure in 2009 as such states as California, Florida and New York enact budget cuts, reducing potential sales of textbooks to elementary and high schools. He called state budget problems "the elephant in the room."

McGraw-Hill also has an information and media unit, which includes such operations as BusinessWeek magazine, Platts commodities publications and the J.D. Power survey firm.

On Tuesday, McGraw-Hill said it would take a $16.4 million fourth-quarter charge, or 5 cents per share, mainly for 375 job cuts. The company shed 1,045 jobs in 2008, or about 5 percent of its workforce.

In afternoon trading, McGraw-Hill shares were down 69 cents, or 2.7 percent, at $24.80 on the New York Stock Exchange. They closed a year ago at $42.38, according to Reuters data. (Reporting by Jonathan Stempel, editing by Matthew Lewis)