S&P chief: Business lost for "years"

NEW YORK (Reuters) - Standard & Poor's President Deven Sharma said on Monday that the rating company's structured finance business may be lost for "years."

To make up for lost revenue, S&P will be looking for growth in emerging markets such as Asia, the Middle East, South Africa and Dubai, as well as new rating business in the loan market, he said at the Reuters Investment Outlook Summit in New York.

Top rating agencies, such as S&P, Moody's Investors Service and Fitch Ratings, have been criticized for exacerbating a credit crisis that hit last year, due to assigning high marks for risky structured debt that later tumbled in value. The rating firms generated large profits through charging fees, which have largely dried up with the credit downturn.

"Will (new business) completely make it up?" Sharma asked. "It will be in the order of a few years" and the business will not be recouped this year, he said.

Moreover, financial firms will likely face earnings pressure for another six to 12 months, Sharma said.

In a defense of S&P, Sharma said he understood criticism of agency rating methods, but noted that their assumptions of 5 percent housing price declines in 2004 and 2005 were widely shared.

Few analysts could have predicted the 20 percent declines that struck the U.S. housing market, he said.

In addition, he said, many investors just didn't really understand what a top "AAA" rating meant for structured finance products, which are complex, repackaged bonds. The riskiest of the products were tied to subprime mortgages.

"It's a question a lot of people ask. Is a triple-A, a triple-A, a triple-A?" Sharma said. "We reflected on it and recognized one of the things we didn't explain to investors as much as we should have done is what comparability of ratings really means."

Standard & Poor's parent company, McGraw-Hill Cos (MHP.N: Quote, Profile, Research, Stock Buzz), in reporting its first quarter results in late April, had cited "a steep decline in structured finance." It said revenue of Standard & Poor's Credit Market Services fell 21.6 percent in the first quarter, with growth overseas and in non-transaction business helping to cushion the decline in structured finance and decline in corporate.

Moody's Corp (MCO.N: Quote, Profile, Research, Stock Buzz), the parent of Moody's Investors Service, had reported that the rating agency's revenue fell 37 percent in the first quarter. Within the ratings business, it said the global structured finance revenue fell 57 percent and its U.S. structured finance revenue plunged 69 percent.

Sharma became S&P's president last year, after the departure of Kathleen Corbet. Moody's Corp also saw a shift when Brian Clarkson, its president and chief operating officer, retired in May.

France's Fimalac SA (LBCP.PA: Quote, Profile, Research, Stock Buzz), the parent of Fitch Ratings, last month said Fitch's revenues could decline by about 20 percent for the 12 months ending September 30, 2008.

Year-to-date, Moody's share are up 6.8 percent, while McGraw-Hill has fallen 0.3 percent. Fimalac has climbed 5.9 percent year-to-date.

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Walden Siew, Editing by Leslie Adler)