S&P admits $5 billion blunder in subprime review
NEW YORK (Reuters) - Standard & Poor's admitted to making a nearly $5 billion blunder in correcting its own estimate for subprime securities it is reviewing for ratings cuts.
S&P corrected the volume of residential mortgage-backed securities it placed under review for downgrade on Tuesday to $7.35 billion from $12.1 billion.
"This is obviously sloppy by S&P," said Mirko Mikelic, a fund manager at Fifth Third Asset Management in Grand Rapids, Michigan. "I don't think anyone's doing back flips."
Standard & Poor's original statement announcing the review of 612 residential mortgage securities on Tuesday spooked investors, driving them away from financial stocks and other riskier investments and into the safety of U.S. government bonds. A benchmark subprime index fell to a record low.
"It was an error and we corrected it," S&P spokesman Adam Tempkin said on Thursday. "It was human error. It is what it is."
S&P said the volume corrected represents 1.3 percent of the $565.3 billion U.S. subprime mortgage market it rated between the fourth quarter of 2005 and the fourth quarter of 2006.
The changes by S&P, the credit-rating unit of McGraw-Hill Cos. (MHP.N), come on the heels of increasing troubles in the subprime mortgage market that caters to borrowers with spotty credit histories.
"The market's been so sensitive to the subprime issue, so you would think that they would dot their I's," Mikelic said. "It doesn't help when S&P is changing their numbers."
