Standard & Poor's Rating
During the 1830s the capital markets developed quickly thanks to the development and construction of the railroad industry in the United States. But the availability as well as the transparency of corporate records was limited and there was no third-party system in place to measure and analyze the financial strength of public and private companies involved in the industry. Investing in a new venture with a private company was a hit and miss venture. Investors didn't know the real financial health of any company in the railroad industry. Companies were operating with little or no capital, and investors were losing money because of that fact.
In 1860, Henry Varnum Poor published History of the Railroads and Canals in the United States. It was the first major attempt at compiling a comprehensive look into the operational and financial details of US railroads, which was the most capital-intense and largest industry in the United States at that time. Poor's first publication was well received, but his second publication, Manuals of the Railroads of the United States was a complete sell-out in 1868.
Poor decided to form a company with his son, Henry William Poor, that same year. The company's mission was to update the manual every year with new investor information since the railroad industry was constantly growing and changing in terms of participating companies and investment opportunities. The 442-page manual originally sold for $5 and contained pertinent information for investors but those investors needed current information to protect their financial interests. Company updates allowed them to chart the progress of different companies over the years.
In 1870, Henry Varnum Poor retired from the day-to-day activities of the company but continued to write about economic affairs and to help edit company manuals. Henry William Poor decided to open an insurance brokerage and banking firm after his father retired, which he called Poor and Company, an endeavor with which his father helped. Poor and Company eventually became one of the leading firms on Wall Street and held that position for the next 30 years.
In 1906, Luther Lee Blake recognized the need for a centralized and accurate financial information source for investors so he formed the Standardized Statistics Bureau, which focused on industries outside of the railroad industry. Blake published an annual bound volume and updated it yearly with 5x7" index cards so investors could continually update investment information. In 1913, Standardized Statistics bought Babson Stock and Bond Card System, which published financial information about stocks and bonds on cards similar to the cards Blake used at Standardized Statistics.
One of the former owners of Babson Stock and Card bought Moody Manual Company in 1914 and he began negotiations to buy Poor's Railroad Manual Company. In 1919, Moody Manual and Poor's Railroad Manual merged; the new company was called Poor's Publishing Company. In 1922, Poor's Publishing and Standard Statistics begin rating municipal securities and corporate bonds, and in 1923 Standard Statistics developed its first stock market index, which covered 233 US-based companies. The index was computed weekly and was the first widely published capitalization weighed report.
Standard Statistics continued to offer new tools and in 1926 the first 90-stock composite price index was computed daily. The stock market crash took its toll on Poor's Publishing and it went bankrupt. A Babson relative, Paul Babson, refinanced the company and acquired most of the stock in the company after the crash.
In 1941, Standard Statistics merged with Poor's Publishing and formed Standard and Poor's Corporation. Standard and Poor's published a new bond guide that year, which contained 7,000 municipal bond ratings. In nine short years, and after surviving the effects of a world war, Standard and Poor's had combined subscriptions of over $5 million, a figure that doubled in the next nine years.
The S&P stock index was introduced in 1957, and in 1962 Standard and Poor's became a publically traded company. In 1966 Standard and Poor's was bought by McGraw-Hill Publishing Company.
Over 150 years later, Standard and Poor's has offices in 23 countries, publishes more than 870,000 new and revised credit ratings, rates more than $32 trillion in outstanding debt and is widely known for maintaining one of the largest indices of large-cap stocks, the S&P 500, which celebrated its 55th anniversary in 2012.
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