Standard & Poor’s misled investors by awarding its highest rating to a complex derivative product that collapsed in value less than two years after it was created by ABN Amro’s wholesale banking division, an Australian judge has ruled in a landmark case that paves the way for legal action in Europe.
In a damning verdict, the Federal Court of Australia ruled that S&P and ABN Amro had “deceived” and “misled” 12 local councils that bought triple-A rated constant proportion debt obligations (CPDOs) from an intermediary in 2006.
The court said a “reasonably competent” rating agency could not have given a triple A rating to the “grotesquely complicated” securities. S&P and ABN’s wholesale banking arm, which is now owned by RBS, also published information and statements that were either “false” or involved “negligent misrepresentations”, Justice Jayne Jagot found.