At 1557 Paris time yesterday, the rating company Standards & Poor's sent out an erroneous alert message to a number of its subscribers of its global credit rating web site that the company had downgraded France's triple-A credit rating. According to the Wall Street Journal, it took nearly two hours before S&P sent out another note stating that the alert was in fact a "technical error."
The WSJ said that as the news of the alert spread, "... the euro weakened against the dollar, U.S. stocks slipped and French bond prices fell, pushing yields higher. Cash reversed course, flooding into U.S. Treasurys and German government bonds."
After S&P issued its retraction, the markets calmed down, although the Journal reported that "French bond prices gained back only a small amount" of their fall.
The S&P's retraction (cited in this Bloomberg News story) stated that:
"As a result of a technical error, a message was automatically disseminated today to some subscribers of S&P’s Global Credit Portal suggesting that France’s credit rating had been changed. This is not the case: the ratings on Republic of France remain ‘AAA/A1+’ with a stable outlook, and this incident is not related to any ratings surveillance activity. We are investigating the cause of the error."
The French government, which has been trying hard to maintain the country's triple-A credit rating amid the financial turmoil rocking the European Union, was understandably upset about the "shocking error" and S&P's non-explanation for it. According to a Bloomberg Business Week story today, the EU's market regulator is going to open up an investigation.
Market traders also were not happy about the incident, either. According to one London trader quoted in this story in the Financial Times of London:
"We are furious with S&P. To make such a mistake in this febrile market with worries over France’s triple A is highly irresponsible and alarming."
The S&P, which has few friends in the EU (or the US for that matter), better have a very credible explanation very soon for how and why the "technical error" occurred and why it took so long to correct it.
Update: 14 Nov 2011
S&P gave an explanation of sorts for the problem on its web site. The statement says:
"In December 2010, a Banking Industry Country Risk Assessment (BICRA) ranking for France, which is not a credit rating, was placed on Standard & Poor's Global Credit Portal as an initial step to determine the workability of putting all the BICRA rankings on individual pages for easy access for users. The other 85 BICRA rankings were not entered on individual pages on the Global Credit Portal, although reports on all of Standard & Poor's BICRA rankings were available elsewhere on the site. On Nov. 10, 2011, following the publication by Standard & Poor's of a review of all of its BICRA rankings, the BICRA ranking for France was changed to 'N/A' (not available) on the Global Credit Portal page. The system mistakenly interpreted this change as a 'downgrade' and triggered a message to a limited number of subscribers who had signed up to receive e-mail alerts."
Looks like poor boundary testing of a new feature to me. Anyway, the S&P says it is taking steps to make sure it doesn't happen again.