A Bailout Nation reader reached out to me with the following tale. What makes it so compelling even today was what they thought they could do with it: Turn it into another Pay-for-Play business:

I was at Morningstar as a mutual fund analyst when S&P tried to buy the company circa 1997.

The S&P people insisted to Joe Mansueto (Founder/Chairman) that he was leaving big mounds of money on the table by not charging mutual funds for their ‘star’ ratings.

Joe replied to the S&P bidders that it was an obvious conflict of interest to charge the funds for their own ratings — how would Morningstar maintain its independence?

They called him naive — and stopped the merger talks.

I was a mid-level manager at Morningstar at the time; I heard the above from an exec who was told it by the CEO. I wasn’t in the meetings or anything, but I have no reason to doubt that that’s what went down . . .

I have no first hand knowledge of this, but knowing what I do of the parties involved, and having confidence in this source of info, the anecdote rings rather true to me.

Consider how typical that “Pay for Play” as a model was amongst the Ratings Agencies. To me, it is very consistent with the thought process and attitudes that were pervasive among the rating agencies circa 1990s/early 2000s.

~~~

NOTE: In 2007, Morningstar Research announced that it had acquired Standard & Poor’s fund data business.

Category: Bailouts, Legal, M&A

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “S&P Tried to Buy Morningstar”

  1. AmenRa says:

    Looks like in 2007 Morningstar’s ethics won in the end. I wonder how many banks were willing to use them to rate their RMBS, CMBS, etc. Probably none.

  2. Bob A says:

    The game is rigged. The books are cooked. Have been. Still are. Probably always will be.

  3. VennData says:

    I find it hard to believe Wall Street types would try to squeeze every dime out of some purported service for individual investors – ethics be damned – and have the lobbyists force feed tweaks into major legislation after the fact that just gives them enough leeway to protect themselves from a complete government shut down. It would never happen. Not in this great land.

  4. GB says:

    What? They don’t get payed by performance or helping investors but by under the table type deals?

  5. ben22 says:

    GB,

    First you say you respect Obama for showing that our economy is rewarding the wrong type of investment in America and in the very next line you say you hope the carbon credit agenda gets passed. Do you not realize how much money can be made trading carbon credits ?

  6. Mannwich says:

    @AmenRa: Putting the genie (or should I say, “genius”?) back in the bottle and acting like nothing systemic needs to be fixed. Everything just fine. Let’s all move along and play pretend.

  7. uno says:

    This actually carried over into the investment banker/VC/Internet-startup worlds as well around 10 years ago.

    The companies that the investment banksters were hawking the hardest via such luminaries as Mary Meeker took it upon themselves — with no small conflict of interest — to stand on the necks of the IPO companies in terms of valuation.

    In one famous incident, during a conference call with Meeker on the line that was determining what the IPO $/share was going to be, one exasperated VC distinctly shouted out “Blow me!” — whereupon the phone call was not unreasonably ended shortly thereafter.

    Once the pricing conversation was again re-started, the less emotional VC flatly stated that he had actually shouted “Baloney!” That was more or less allowed to slip by as a not-bad recovery.

    But later, post IPO, all parties gathered for the requisite dinner celebration. As the covered dinner plates of fine dining were unveiled…one rather stood out: the VC’s dinner? — a baloney sandwich.

    (True story!)

  8. uno says:

    Self-editing (late): “The IPO companies that the investment banksters were hawking the hardest via such luminaries as Mary Meeker — with no small conflict of interest — got their necks stood on in terms of valuation.”

  9. impermanence says:

    GB says:

    “That’s one thing that I respect about Obama. He at least has made light that our economy is rewarding the wrong type of investment in America.”

    This guy (Obama) is the biggest fraud ever. At least you knew what sort of an idiot you had with Bush. People need to understand that this system is done. You people can splice and dice it a million ways, but it’s over. The people at the top have absolutely no fear that anybody will do anything against them. That’s is how fascism works. The little people (the professional class) will do literally anything to hold on to their crumbs, while the rest submerge deeper and deeper into the abyss.

  10. Mannwich says:

    @impermanence: I think O knows full well the jig is up but figures they have no alternative (except broad civil rest, and GD II, but worse) but to do what they’re trying to do – - patch things up and re-start the game all over again. It’s not going to work but it’s buying them some time before it eventually does fall apart again.

  11. Mannwich says:

    that’s civil UN-rest….

  12. impermanence says:

    Mannwich:
    By fraud, I mean his portrayal that he has a clue. He was groomed to be President because he could convince the people that he was honest. This is different than the Paulson type of fraud where he is just lying through his teeth.

    What is most dis-heartening is the absolute lack of guts that the American professional class has shown. It is the final sell-out of the ideals of the sixties. They took what was left of their parents’ system and completely trashed it.

  13. Mannwich says:

    @impermanence: Agreed. Perhaps what we’re seeing unfold is just inevitable human nature-wise. Human nature doesn’t change over the years and we’re merely following other past empires who ultimately saw their demise unfold for similar reasons.

  14. impermanence says:

    @Mannwich: considering it’s nearly impossible to understand the simplest of things, I guess we’re not going to get to the bottom of this anytime soon. Just sucks for the kids.

  15. AmenRa says:

    Uh oh here we go again…

    http://www.bloomberg.com/apps/news?pid=20601110&sid=aImf5u463oUc

    Banks are increasing their MBS purchases.

  16. philipat says:

    I’ve been worried from the outset that the Ratings Agencies, as a result of all their influence, would be able to avoid effective regulation and/or a return to “Buyer pays”. And now, sure enough none of the changes proposed by Geithner/Bernanke include ANY impact on the Artings Agencies. Now, it can’t be that the conflicts of interest are not glaringly obvious can it?
    Leaving pay to play in play is like a ticking time bomb just waiting for the next financial debacle 5-10 years from now.

    “That’s just the way it is, some things will never change”

    At least Buffett must be happy.

  17. philipat says:

    @Ratings Agencies