SEC, Department of Justice investigating S&P

[July 27, 2012]  NEW YORK (AP) -- Regulators are investigating Standard & Poor's over some of its ratings, according to a regulatory filing by the S&P's parent company.

The McGraw-Hill Companies Inc., which owns the S&P ratings agency, says the Department of Justice and the Securities and Exchange Commission are investigating whether the S&P broke federal laws when rating certain investments.

McGraw-Hill says the accusations are unfounded and that it will vigorously defend itself.

The company didn't give details, and analysts didn't ask about the investigation in a conference call about McGraw-Hill's second-quarter earnings. But ratings agencies like S&P have been accused of giving improperly high ratings to some investments made of mortgage loans that had been packaged together and sold to investors, helping fuel the financial crisis.

Last September, the SEC told the ratings agency it was considering filing a charge over S&P's ratings on a particular investment offering from 2007, just before the meltdown in the housing market imploded.

McGraw-Hill disclosed the latest development about the Justice Department in a regulatory filing related to second-quarter earnings. Investors were unfazed: Shares rose almost 3 percent in afternoon trading, climbing $1.29 to $46.28.

McGraw-Hill is in the midst of splitting into two companies, McGraw-Hill Financial and McGraw-Hill Education. The financial company will include the S&P ratings agency, the Platts energy analysis unit, the J.D. Power rankings and the S&P Capital IQ research arm. The education division includes tests and other materials for schools and colleges.

Revenue in the financial unit rose 5 percent, but revenue in the education unit fell 12 percent. The company blamed state budgets slashing funding for textbooks.

Overall, McGraw-Hill revenue fell 1 percent to $1.55 billion, below the $1.59 billion predicted by analysts polled by FactSet.

But cost cutting helped boost net income by 2 percent to $216 million, or 76 cents per share, from $211 million, or 68 cents per share.

After excluding one-time charges, mostly related to money the company is spending to prepare for its split, per-share earnings were 85 cents. That was higher than the 76 cents predicted by analysts.

[Associated Press]

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