Moody’s exec denies claims of inflated ratings
WASHINGTON — The chief credit officer of Moody’s Investors Service told Congress Wednesday that a former analyst’s allegations of inflated ratings and conflicts of interest at the firm are groundless.
Richard Cantor testified that the firm reviewed the complaints by ex-analyst Eric Kolchinsky, who was suspended from his job, and found them to be “unsupported.” Kolchinsky has refused to cooperate with Moody’s inquiry into the matter, Cantor said.
Kolchinsky told lawmakers he believed Moody’s violated securities laws by issuing credit ratings the firm knew to be inaccurate.
“They still went forward and issued the rating,” he testified to the House Oversight and Government Reform Committee.
The panel’s chairman, New York Democrat Edolphus Towns, says the allegations, if true, “indicate troubling behavior” in the credit rating industry.
Another former Moody’s employee, who was responsible for compliance, warned federal regulators in March about what he said were deficiencies in the firm’s monitoring of municipal bonds.
Congress’ escalating scrutiny of the rating industry, dominated by Moody’s, Standard & Poor’s and Fitch Ratings, appears to be making investors nervous.
Shares of Moody’s Corp. fell $1.33, or 6.4 percent, to $19.48 in morning trading. Moody’s stock hit a recent high of $25.92 on Sept. 16, but mostly has fallen since and is still well below last September’s high of $34.64.
Scott McCleskey, who was a senior vice president for compliance at Moody’s until he left a year ago, wrote a letter to the Securities and Exchange Commission alleging a “lack of meaningful surveillance of municipal securities, contrary to statements by Moody’s to the public and to Congress.”
McCleskey told the SEC he became aware that New York-based Moody’s did “virtually no surveillance” on public finance securities, the debt issued by states, counties, towns and school districts.
When he raised concerns to managers, he said, “My guidance was, to put it politely, ignored.” In fact, at one point last year he and others were told in a meeting that they were forbidden to mention the issue in any e-mails or other written form, McCleskey said.
The Wall Street rating industry was widely criticized for failing to identify risks in securities backed by subprime mortgages, whose collapse touched off the financial crisis.
The agencies had to downgrade thousands of the securities last year as home-loan delinquencies soared and the value of those investments plummeted. The downgrades contributed to hundreds of billions in losses and writedowns at big banks and investment firms.
Another House panel, the Financial Services subcommittee on capital markets, is holding a hearing Wednesday on reform of credit rating agencies. An SEC official and high-ranking executives of Moody’s, S&P and Fitch are scheduled to testify. S&P is owned by McGraw-Hill Cos. Inc.
The agencies are crucial financial gatekeepers, issuing ratings on the creditworthiness of public companies and securities. Their grades can be key factors in determining a company’s ability to raise or borrow money, and at what cost securities will be purchased by banks, mutual funds, state pension funds or local governments.
The SEC recently proposed rules designed to stem conflicts of interest and provide more transparency for credit rating agencies.
SEC spokesman John Nester said Tuesday the agency “has established an examination program for credit rating agencies … that includes reviews of disclosures, policies and procedures regarding municipal securities ratings.”
“We are focusing carefully on the tips and complaints we receive and following up, where appropriate, with examinations targeting suspected problems,” he said.
Regulators say they hope to spur more competition in the rating industry — with possibly new entrants and the other seven existing agencies — challenging the dominant firms. One of the SEC’s proposals would bar companies from “shopping” for favorable ratings of their securities, by requiring companies to disclose whether they had received preliminary ratings from other agencies.
Related News
Moody's reviewing Sinclair Broadcast for potential ratings upgradeOctober 9th, 2009 Moody's says Sinclair Broadcast may get upgradeNEW YORK — Moody's Investors Service on Friday put Sinclair Broadcast Group Inc. on review for a possible upgrade after it commenced a refinancing of its debt and came to a deal to renegotiate a local marketing agreement.
Key lawmaker proposes group liability for credit rating agencies to stem conflictsSeptember 30th, 2009 Lawmaker seeks group liability for rating agenciesWASHINGTON — A key House lawmaker wants to make credit rating agencies — widely criticized for failing to give investors adequate warning of the risks in subprime mortgage securities that triggered the financial crisis — collectively liable for inaccuracies. Pennsylvania Democrat Paul Kanjorski's new draft bill includes a plan meant to address what critics contend is the crux of the current system's problem: Companies that issue securities — as opposed to investors — pay the agencies for ratings of those securities.
As Congress probes ratings agencies, allegations by 2nd former Moody's employee come to lightSeptember 30th, 2009 Ex-Moody's employee warned SEC about muni issuesWASHINGTON — A former employee of Moody's Investors Service warned federal regulators in March about deficiencies in the credit rating agency's monitoring of municipal bonds after being rebuffed by Moody's executives, a document shows. Scott McCleskey, who was a senior vice president for compliance at Moody's until he left a year ago, wrote a letter to an official at the Securities and Exchange Commission alleging a "lack of meaningful surveillance of municipal securities, contrary to statements by Moody's to the public and to Congress."
McCleskey is scheduled to testify Wednesday at a hearing by the House Government Oversight Committee, which is examining the role of the Wall Street rating agencies in the financial crisis and weighing regulatory changes to help prevent future blowups.
Former Moody's employees lay out misconduct claims as lawmakers aim at rating industrySeptember 30th, 2009 Ex-Moody's employees allege misconductWASHINGTON — Two former Moody's Investors Service employees detailed allegations of misconduct at the big ratings firm as lawmakers took aim at a credit rating industry they condemned as rife with conflicts of interest and needing reform. Seeking accountability for the role of the ratings industry in the financial crisis, members of the House Oversight and Government Reform Committee on Wednesday questioned a high-level Moody's executive, who denied the former employees' claims.
China says US criticism of military growth is 'totally groundless'September 17th, 2009 China rejects US criticism of its militaryBEIJING — China dismissed U.S. accusations that the growth and modernization of its military poses a threat, saying Friday that the comments were groundless and irresponsible.
Moody's stock slides as government probes begin into credit rating agenciesSeptember 17th, 2009 Moody's stock slides on probes into credit ratingsDES MOINES, Iowa — Shares of rating agency Moody's Corp. fell Thursday as government agencies began looking into credit rating companies' actions during the financial crisis.
Moody's Investors Service considers downgrade for Sallie Mae ratings, citing profit, cash flowAugust 27th, 2009 Moody's mulls downgrade for Sallie MaeNEW YORK — Moody's Investors Service said it is considering downgrading long-term ratings for the nation's biggest student lender, Sallie Mae, citing earnings and cash-flow generation at the company. Sallie Mae, formally called SLM Corp., faces significant uncertainties over the political and consumer lending environment for student lenders, Moody's also said.
Moody's raises rating outlook on Advance Auto Parts, affirms debt ratingsJuly 30th, 2009 Moody's lifts rating outlook on Advance Auto PartsNEW YORK — Moody's Investors Service said Thursday it raised its rating outlook on auto parts retailer Advance Auto Parts Inc. to positive from stable and affirmed its debt and liquidity ratings for the company.
Moody's considers rating downgrade for loan program offered through Calif. pension fundsJuly 18th, 2009 Moody's may downgrade Calif. pension funds' ratingSACRAMENTO, Calif.
Standard & Poor's lowers some Washington Post credit ratingsJune 26th, 2009 S&P lowers Washington Post corporate credit ratingNEW YORK — Standard & Poor's Ratings Services on Friday lowered its corporate credit and senior unsecured issue-level ratings on Washington Post Co. to A from A+.
Moody's lowers ratings for KB Home citing operating losses, asset impairmentJune 22nd, 2009 KB Home ratings lowered by Moody'sNEW YORK — Moody's Investors Service on Monday downgraded all of the ratings of homebuilder KB Home, including its corporate family rating, its probability of default rating and its senior notes rating. The outlook for the Los Angeles-based company remains negative.
Moody's sees no benefit for creditors from bank TARP repayments; no bank ratings changedJune 18th, 2009 Moody's: TARP repayments don't change bank ratingsNEW YORK — The repayment of about $68 billion in bailout money by 10 large banks may seem like signs of financial strength, but Moody's Investors Services said late Wednesday it's not in the interest of creditors in the short term. The ratings agency said "the repayments have the immediate effect of lowering capital levels and of shrinking liquidity positions at a time when economic and financial market conditions remain highly unsettled."
Moody's does not expect to lower the ratings of the 10 banks — among the largest in the country— who made repayments Wednesday.
Moody's downgrades ratings of 30 Spanish banks and other lendersJune 16th, 2009 Spanish bank ratings downgradedMADRID — Moody's Investors Service has downgraded the ratings of 30 Spanish banks and building societies, citing Spain's economic downturn and a big rise in non-performing loans. The country's two largest banks — Banco Santander and BBVA — retained their B rating in financial strength and Aa1 rating for long-term debt.
Moody's reviewing UBS' key ratings for possible downgradesJune 15th, 2009 Moody's to review UBS' ratingsNEW YORK — Credit ratings agency Moody's Investors Service on Monday said it will review whether to lower key ratings for UBS AG, the huge Swiss bank that has been hit hard by the financial crisis and a U.S. legal probe into its American clients' offshore accounts.
Moody's downgrades New York Times, McClatchy credit ratingsApril 25th, 2009 New York Times, McClatchy credit ratings cutNEW YORK — Moody's Investors Service on Friday downgraded the credit ratings of The New York Times Co. and McClatchy Co.
Loading ...