Douglas Peterson to Become President of S&P

Standard & Poor’s future president Douglas Peterson. Photographer: Haruyoshi Yamaguchi/ Bloomberg

By Katrina Nicholas and John Detrixhe
Aug 23, 2011 12:07 PM GMT+0700

Standard & Poor’s, the ratings company that downgraded the U.S. AAA credit ranking for the first time, will replace President Deven Sharma with Citibank NA Chief Operating Officer Douglas Peterson.

Sharma, 55, will leave at the end of the year to “pursue other opportunities,” S&P’s parent McGraw-Hill Cos. said in an e-mailed statement. Peterson, 53, will take over Sept. 12 and Sharma will work on the company’s strategic review.

S&P’s Aug. 5 decision to reduce the U.S. credit rating to AA+ roiled global markets and boosted demand for Treasuries, sending the yield on the 10-year note, the benchmark for home mortgages and car loans, to a record low 2.03 percent. The New York-based company, which was blamed in an April Senate report for helping fuel the credit crisis, was criticized by the world’s most successful investor, Warren Buffett, who said the U.S. should be “quadruple-A.” The cut conflicted with Moody’s Investors Service and Fitch Ratings, which kept AAA grades.

“It looks like he’s being helped out the door,” Noel Hebert, a credit strategist at Mitsubishi UFJ Securities USA Inc. in New York, said in a phone interview. “If it was a planned retirement, it should have been handled in a different way.”

Peterson, Sharma

Peterson was approached by McGraw-Hill in March, a person with direct knowledge of the talks said. He was chief executive officer of Citigroup Japan from 2004 to 2010 and was hired by the New York-based investment bank out of business school 26 years ago, according to an internal memo outlining his departure, whose contents were confirmed by Shannon Bell, a Citigroup spokeswoman in New York.

Peterson, who has an undergraduate degree in mathematics and history from Claremont McKenna College and a MBA from the Wharton School at the University of Pennsylvania, began his career in Argentina as a corporate banker and became Citigroup’s country manager in Costa Rica and then Uruguay, according to the memo.

Sharma, who joined S&P in 2007 as the global credit crisis was unfolding, will exit as McGraw-Hill faces mounting pressure from some of its shareholders to separate into four units. Jana Partners LLC and Ontario Teachers’ Pension Plan, which together own a 5.2 percent stake, presented a plan Aug. 22 to split the group, saying it has “consistently underperformed its potential” and is trading at “a sizable discount.”

Company Split

Since Aug. 5, the day of the downgrade, McGraw-Hill’s shares have lost 11 percent compared with a decrease of 6.3 percent for the S&P 500 Index (SPX), according to data compiled by Bloomberg. McGraw-Hill’s stock rose 0.1 percent to $37.04 yesterday.

Chief Executive Officer Terry McGraw said last month the company is conducting a strategic portfolio review after announcing in June plans to sell its broadcasting group. Sharma will work on the review until December.

In November, S&P was divided between McGraw-Hill Financial and the credit rating service. After the split, Sharma is “ready for new challenges,” according to the statement.

Sharma holds a bachelor’s degree from the Birla Institute of Technology in India, a master’s degree from the University of Wisconsin and a doctoral degree in business management from Ohio State University. He joined McGraw-Hill in January 2002 from consultants Booz Allen Hamilton, where he was a partner.

He was appointed president in August 2007, one month after S&P started lowering its ratings for hundreds of mortgage-backed securities, acknowledging that notes it originally deemed safe were now worth little.

S&P’s revenue grew 10.4 percent to $1.7 billion in 2010, from $1.54 billion a year earlier, Bloomberg data show.

“Since Sharma came in, he has done little to enhance the credibility or reputation of the ratings agency,” Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., said by phone. “Given the recent downgrades, it appears their operational management and ratings modeling have not been meaningfully strengthened.”

To contact the reporters on this story: Katrina Nicholas in Singapore on knicholas2@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net.

To contact the editor responsible for this story: Shelley Smith in Hong Kong at ssmith118@bloomberg.net