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	S&P ratings ruling may cost billions by Australian Financial Review & agencies   Nov 2012   Italian prosecutor charges S&P, Fitch ratings agencies.   Italian authorities have filed charges against Standard & Poor"s and Fitch over downgrades of Italy"s credit rating that helped fuel the eurozone crisis.   Following a two-year investigation, prosecutor Michele Ruggiero requested charges against seven people at two of the world"s top ratings agencies.   Five of the accused worked at S&P"s, while the other two worked at Fitch at the time.   The agencies "intentionally provided financial markets with biased and distorted information", the prosecutor"s office said in a statement.   It is a landmark case since rating agencies came under concentrated attack, particularly from governments as the eurozone crises intensified.   Those charged are accused of setting out to "destabilise Italy"s image, prestige and credit confidence on the financial markets, alter the value of Italian bonds by depreciating them (and) weaken the euro", the statement said.   The charges have to be confirmed by a judge for any trial to go ahead - a process that could take some months under the Italian judicial system.   The ratings agencies have co-operated with the inquiry but claim their economic evaluations were independent.   The probe began in 2010 after an Italian consumer group lodged a complaint over a sovereign downgrade by Moody"s, the other top world rating agency, which has since been cleared by investigators and is no longer part of the case.   Investigators have since focused on more recent rating actions, particularly last year, when market turmoil pushed Italy to the brink of bankruptcy.   Standard & Poor"s earlier this month lost a landmark case in Australia in the first trial of its kind over top-flight ratings given to financial products that collapsed in the build-up to the 2008 global economic crisis.   Dozens of cases have been brought around the world against rating agencies - which were widely criticised for overly optimistic assessments of financial products that turned out to be toxic - but few trials have gone ahead to date.   S&P ratings ruling could cost billions, by Hannah Low & Jonathan Shapiro. (AFR)   Ratings agencies across the globe could be forced to pay billions of ­dollars to investors who lost money during the credit crisis after the ­Australian Federal Court ruled that Standard & Poor’s rating of complex financial products was misleading.   S&P is now expected to face similar lawsuits in the Netherlands and possibly in the United States, United Kingdom and New Zealand, and could be forced to pay compensation for losses from complex investment securities.   The implications of the decision, which is the first globally to rule on the liability of a ratings agency, may affect Moody’s and Fitch as well.   The court found S&P and investment bank ABN Amro, which was bought by Royal Bank of Scotland, misled investors and breached their duty of care when they gave complex and risky products a AAA rating.   Justice Jayne Jagot said the credit assessment process was negligent and no competent ratings agency could have come to that conclusion. S&P said it plans to appeal. ABN and S&P were sued by 12 NSW councils, which said misleading conduct cost them more than millions. They had invested in constant proportion debt obligations (CPDOs) which lost more than 90 per cent of their value during the financial crisis.   The judge ruled that Local Government Financial Services, the investment manager for local government authorities, breached its fiduciary duty to the councils.   When the values of the investments tumbled during the financial crisis there was discussion about how the market could be regulated. Monday’s decision will be closely watched by international investors who also lost money on the products.   The ruling could affect investors across the world, including in the US, UK, the Netherlands and New Zealand because the product was distributed globally using the same rating.   Litigation funder IMF, which funded the Australian lawsuit, is “exploring potential claims” in the Netherlands for European investors.   About €2 billion of the same products were sold by ABN in Europe and rated by S&P.   IMF executive director John Walker said the decision was a resounding victory for the councils.   “It fundamentally arose by agencies and investments banks looking after their own interests and potentially being a material cause of the global financial crisis,” he said.   “So much of these synthetic ­derivatives created huge credit risks outside regulated markets that were really outside the control of our regulators.”   Piper Alderman partner Amanda Banton, who ran the lawsuit, said the ruling may also apply to collateralised debt obligations (CDOs), a much bigger market of about $2.1 trillion. These similarly complex products collapsed during the credit crunch.   Roy Newsome from City of Ryde said of the ruling: “the parties that we relied upon for these products for the advice and also their due diligence obviously didn’t prove to be correct”.   Justice Jagot was scathing in her criticism of the close relationship between ABN and S&P. She said ABN had “sandbagged” and “bulldozed” the agency into giving the products a favourable rating, which meant councils would buy them.   The judge found the bank inappropriately influenced S&P and misrepresented information which S&P then relied on.   The instruments at the centre of the claim were Rembrandt notes. Within months of buying the products in 2006 the Rembrandt notes had “closed out” leaving holders with less than 10¢ in the dollar and no hope of recovery.   The councils argued during the case that S&P confined modelling to “optimistic scenarios” instead of using a range of “stressed ­circumstances” to assess how likely they were to decline in value.   ABN Amro sought to take advantage of S&P’s lack of skills to rate the credit risk of the securities, the councils’ argued, and provided S&P with financial models instead of the ratings agency creating its own.   Asked if this was normal, ABN Amro banker Mike Drexler allegedly replied: “No, it’s not normal, it’s highly weird. An opportunity, ­however.”   One problem was the volatility assigned to the products, which was part of the ratings calculation. S&P wanted to give the products a 35 per cent volatility rating, the court heard, but ABN Amro “sought to persuade” S&P to adopt the low figure of 15 per cent volatility, which later turned out to be far below the accurate figure. If the securities were given a 35 per cent volatility, they wouldn’t have been rated triple-A, the top rating, the court heard.   Justice Jagot said S&P’s rating was “hopelessly deficient”. In her judgment, Justice Jagot attacked the core of S&P’s business and found that the agency was not operating independently of the investment bank.   A large group of ABN Amro and S&P executives worked on the deal, many of whom were based in New York and London.   S&P’s conduct in assigning the AAA rating “at a time when it knew many facts and circumstances which would and should have led inexorably to the conclusion that the AAA rating was irrational and unreasonable, and ABN Amro’s willingness to deploy that rating when it knew all S&P did and more, remains at the heart of all of the derelictions of duty”, Justice Jagot said.   Ratings agencies are paid by banks for rating their products.   The judge said ABN Amro should have known the councils would be told “that the AAA rating meant that the product had a degree of security or default risk commensurate with the AAA rating”.   “Yet, as I have found, ABN Amro in fact knew that the AAA rating was unreasonable and unjustified.”   The CDPO notes were structured by an ABN Amro team based in Europe. “The deal went very well,” said a former employee of ABN Amro. “The sales team were able to sell it without having to push it too hard. And that was largely because of the rating. A lot of investors had mandate limits and because it was rated AAA it fit [within the mandate], while the yield was pretty good.”   The IMF’s Mr Walker said governance within S&P was clearly a problem. “Unfortunately what happened was the ratings agencies got too close to the investment banks,” he said.   The business of the ratings agencies ballooned in 2005 thanks to the banks, Mr Walker said, and “it’s very difficult not to believe that that influenced the rating that were attributed to these products by these ratings agencies”.   Less than two months ago another judge of the same court found the Australian arm of failed investment bank Lehman Brothers liable for misleading unsophisticated investors in breach of fiduciary duties in relation to CDOs. Investors are expected to receive about 30¢ in the dollar from the liquidator, and Ms Banton said yesterday her team would now consider bringing a lawsuit against S&P and possibly Moody’s to recover the remainder of the $250 million owed to the investors.
	Violent forced evictions are on the rise in China by Amnesty International   October 2012   Violent forced evictions in China are on the rise as local authorities seek to offset huge debts by seizing and then selling off land in suspect deals with property developers, Amnesty International said as it urged government action.   In a new 85-page report, Standing Their Ground, Amnesty International highlights how forced evictions - a longstanding cause of discontent within China - have increased significantly in the past two years in order to clear the way for developments.   Local governments have borrowed huge sums from state banks to finance stimulus projects and now rely on land sales to cover the payments.   This has resulted in deaths, beatings, harassment and imprisonment of residents who have been forced from their homes across the country in both rural and urban areas.   Some were in such despair they set themselves on fire in drastic protests of last resort.   However, China’s ruling Communist Party continues to promote local officials who deliver economic growth, regardless as to how it is achieved. Land re-development, at whatever cost – whether for new roads, factories or residential complexes – is seen as the most direct path to visible results.   “The Chinese authorities must immediately halt all forced evictions. There needs to be an end to the political incentives, tax gains and career advancements that encourage local officials to continue with such illegal practices,” said Nicola Duckworth, Senior Director of Research at Amnesty International.   Of 40 forced evictions that Amnesty International examined in detail as part of the research, nine culminated in the deaths of people protesting or resisting eviction.   In one case a 70-year-old woman, Wang Cuiyan, was buried alive by an excavator on 3 March 2010 when a crew of about 30 to 40 workers came to demolish her house in Wuhan city, Hubei Province.   Local officials continue to sanction or turn a blind eye to the harassment of residents by developers using ruthless tactics to force people out of their homes and sell their rights to land-use.   Proper consultation or notice as required under international law as well as adequate alternative housing are seldom given and any compensation falls far short of the true market value.   Residents come under concerted campaigns including the cutting off of essential services like water and heating. Civil servants who oppose land deals often face reprisals. Local governments and property developers frequently hire thugs wielding steel rods and knives to rough up residents. Housing rights activists, lawyers and academics in China confirmed Amnesty International’s finding that the police hardly ever investigate such crimes.   One violent example occurred on 18 April 2011 when a few hundred men entered Lichang village in Jiangsu Province and attacked farmers to force them off their land. About 20 women from the village were dragged away and beaten.   On 15 June 2011, police in Wenchang city, Sichuan province even took custody of a 20-month old baby and refused to return him until his mother signed an eviction order.   People who stage resistance to forced evictions often end up in jail or in Re-education Through Labour (RTL) Centres.   In one case, authorities in Shandong province assigned Li Hongwei, a victim of forced eviction, to 21 months RTL detention for delivering two protest speeches in a plaza in May last year.   In Hexia township Jiangxi province, a woman was beaten and forced to undergo sterilization, on 17 May 2011 after she had petitioned the authorities about her eviction, whilst other residents that accompanied her were beaten. Amnesty International considers such forced sterilization to be an act of torture.   The lack of independence in Chinese courts means those that seek to challenge an eviction or seek redress have little hope of gaining justice. Lawyers are also reluctant to take on such clients for fear of the repercussions.   With no access to justice some have turned to violence or even self-immolation as a last resort.   Amnesty International collected reports of 41 cases of self-immolation from 2009 – 2011 alone due to forced evictions. That compares to fewer than 10 cases reported in the entire previous decade.   Forced evictions remain one of the greatest issues of popular discontent within China. Premier Wen Jiabao has acknowledged the gravity of the situation and there has been some progress towards protecting people against forced evictions in line with international law and standards.   For the first time, new regulations adopted in 2011 state that compensation for homeowners must not be lower than market value and outlawed the use of violence.   However, these laws and regulations still fall far short of the required standards and apply only to city dwellers.   Rural communities remain vulnerable to forced evictions, particularly those close to urban areas. With urbanization happening so quickly around them, and compensation based on the agricultural value rather than the true market value, farmers are often priced out of the communities they have lived in their whole lives.   Another major weakness in the latest regulations is that they only provide protections for homeowners, overlooking the rights of tenants.   Forced evictions - the removal against their will of individuals, families or communities from the homes or the land they occupy without access to legal or other protections - are banned under international law.   Amnesty International is calling on the authorities to immediately halt all forced evictions and ensure adequate safeguards are put in place in line with international law, including:   Implement effective measures to ensure the entire population a degree of security of tenure that would protect them from forced evictions and other threats and harassment.   Ensure that nobody is rendered homeless as a result of a forced eviction and all persons who can not provide for themselves are given adequate alternative housing.   Ensure that all victims of forced evictions have access to independent and impartial adjudication of their complaints and to an effective remedy.   Punish and prosecute those who use violence during the eviction process. Visit the link below to access the report.   * Demand Dignity: http://www.amnesty.org/en/economic-social-and-cultural-rights Visit the related web page
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