DealBook: New S.&P. Chief Knows Crisis and Change

Haruyoshi Yamaguchi/Bloomberg NewsDouglas Peterson, the new president of Standard Poor’s.

The new president of Standard Poor’s is used to dealing with crises, including mollifying angry government officials and navigating complex new regulations.

That experience should serve the executive, Douglas Peterson, the chief operating officer of Citibank, well at his new job at a ratings agency under fire on multiple fronts.

Yet his appointment is not likely to ease the pressure from investors on its parent company, McGraw-Hill, to break itself up even as the company presses ahead with a likely spinoff of its education business.

When he takes the reins of Standard Poor’s on Sept. 12, Mr. Peterson, 53, will have to confront persistent public outrage over the agency’s downgrade of the Unites States’ credit rating as well as an investigation by the Justice Department into S.P.’s analysis of subprime mortgage securities.

It is perhaps the most daunting set of challenges that Standard Poor’s, whose rulings on the quality of thousands of debt issues is a fundamental component of modern finance, has faced in years.

Though Mr. Peterson’s arrival does not stem from these issues — McGraw-Hill began searching for a new president months ago — it will put an executive used to troubleshooting tough situations into an important spot all the same.

His predecessor, Deven Sharma, has been the public face of Standard Poor’s for nearly five years, and has borne a significant amount of the criticism against the agency.

In the end, however, Mr. Sharma’s decision to leave was tied to his frustrated desire to be the successor to McGraw-Hill’s current chief executive, Harold McGraw III, according to people close to the company who were not authorized to speak publicly.

But several items in Mr. Peterson’s résumé hint at what attracted him to McGraw-Hill’s board and top management. Chief among them is his stint running Citigroup’s Japanese business for nearly six years, a time when the firm’s private bank ran afoul of the country’s securities laws.

Mr. Peterson testified before Japan’s upper house of Parliament, the first foreign witness called to testify before a legislative committee. And together with Charles O. Prince III, then his boss as Citigroup’s chief executive, he publicly bowed to government regulators to seek their forgiveness.

He subsequently led the bank’s expansion in Japan, including through the $10.8 billion purchase of a local brokerage firm. The financial crisis forced Mr. Peterson to unwind those moves, though he earned plaudits for his execution.

A Citi employee his entire working life, Mr. Peterson was one of the bank’s youngest country managers, having led its Costa Rica operations in 1991. He also worked as the bank’s chief auditor during the introduction of sweeping accounting rule changes, putting him in close contact with several top regulators.

At Standard Poor’s, Mr. Peterson is likely to put a premium on building relationships with regulators, according to people familiar with his thinking. That will prove important as the agency grapples with continued criticism of its decision to cut the United States’ debt rating to AA+ from AAA, even as major rivals declined to follow suit.

Also pressing is the Justice Department’s inquiry into how Standard Poor’s rated bundles of questionable home loans. Investigators are looking into whether the agency’s analysts were pressured by management into rating those securities higher than required in order to maintain good relationships with debt issuers.

That investigation began gaining steam earlier this summer, though the Justice Department is probably pursuing a civil case, people briefed on the matter have said previously.

Mr. Peterson’s appointment is unlikely to affect a campaign by two activists, the hedge fund Jana Partners and the Ontario Teachers’ Pension Plan, for the company to take bolder steps, according to a person briefed on the investors’ thinking who was not authorized to speak on their behalf.

Instead, the two will continue to press their argument that McGraw-Hill needs to do more than just spin off its education unit. The businesses in its current collection — which include magazines, the unit that manages the famous Standard Poor’s market indexes and several financial data companies — make little sense together and would perform better separately,.

A decision to spin off the education business could be announced as soon as next month, according to people close to the company, who cautioned that McGraw-Hill’s board could change its mind. But the company agrees with Jana and Ontario Teachers that the low-growth division would be better off as a separate business that would no longer hurt the faster-growing remainder of McGraw-Hill.

McGraw-Hill’s management still sees merit in keeping the rest of its operations together, believing that they share common customers and would be too weak to stand alone. It will also divest itself of other assets. A sale of several television stations is expected to be announced by the end of next month.

McGraw-Hill is also pursuing other initiatives that Jana and Ontario Teachers have requested, including a share buyback and cost-cutting, though not at a level that satisfies the investors. The prospect of possible changes ahead has excited investors. Shares of McGraw-Hill rose 4.5 percent on Tuesday, to $38.69, and are now up about 6.3 percent for the year .

Mr. Peterson will not have much of a break from his current job. He will have just one weekend off before he heads to over to S. P.

Azam Ahmed contributed reporting.

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