D-DAY FOR RATINGS AGENCIES
RATING agency Moody’s will enter the firing line today, when one of its former executives tells a congressional hearing that the company was giving inflated ratings to securities as early as this year.
Eric Kolchinsky will also tell the US House Oversight and Government Reform Committee that Moody’s puts revenues from its clients before the accuracy of its ratings.
And Kolchinsky will say the firm’s credit policy group is weak and short-staffed and its analysts are “bullied” by managers who override their decisions to generate revenue.
The former executive – who said he was suspended for threatening to blow the whistle – claims he sent a 14-page memo to the Moody’s chief compliance officer in 2009 about rating methods but felt that his concerns were not taken seriously.
It is understood that the memo has been submitted to the House Oversight and Government Reform Committee.
The claims against Moody’s are sure to turn the spotlight on the other major rating agencies – Fitch and Standard & Poor’s – who are in regulators’ sights for fuelling the financial crisis by assigning artificially high ratings to mortgage-backed securities.
Committee chair Edolphus Towns yesterday said “little has changed” in the “fraudulent, careless, and troubling practices … that brought our nation to the brink of financial collapse”, and warned he could recommend more regulation.
Others giving evidence to the committee today include Floyd Abrams, a partner at New York law firm Cahill Gordon & Reindel, who is representing S&P against around 30 law suits accusing it of delivering misleading ratings.
And Joe Dear, chief investment officer at the California Public Employees Retirement System – the giant US pension fund suing the agencies over $1bn of losses – will testify.
Senator Alfonse D’Amato, former head of the Senate Committee on Banking, will also take to the stand along with respected New York University economist Professor Lawrence White.
Shares in Moody’s plummeted by over eight per cent yesterday, as investors prepared for the potentially damaging hearing.
“Moody’s is committed to upholding the highest standards of professional conduct and analytical integrity,” a spokesman for the ratings agency said.