Sunday, November 4, 2012

Toxic Rembrandt.

Rembrandt as Zeuxis,
c. 1662. [A]
Over a year ago a number of Australian city councils initiated a class action against RBS (ABN AMRO before 2010), S&P and Local Government Financial Services for losses suffered with the Rembrandt CPDO. (See here)

Today Michael West (Fairfax Media) informs us that "The Federal Court's Justice Jayne Jagot has accepted the evidence from 12 NSW councils - who claimed they had been duped into buying a toxic financial product - that the ratings agency Standard & Poor's was little more than a lap dog for slick merchant bankers".

Rembrandt CPDO had been rated AAA by S&P, in spite of being a highly leveraged and risky financial product, which lost 90% of its value a few months after the councils purchased it.

The court ordered the 3 financial agencies to pay AUD30 million, plus interests, to the plaintiffs; S&P claims it intends to appeal.

This decision, together with rulings against Lehman Brothers a few weeks ago, could have international implications:
"It remains to be seen whether the Court's finding that S&P engaged in misleading and deceptive conduct in assigning its coveted-AAA rating to the CPDO will open the flood gates for actions against credit rating agencies in relation to other structured products such as CDOs. Logically, CDOs are also in the gun. Most enjoyed the top rating, most blew up."

Image Credits:
[A] Self Portrait as Zeuxis, c. 1662. Wikipedia.

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