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Winnipeg Free Press - PRINT EDITION
N.Y. attorney general probes credit agencies
Eric Schneiderman (AP)
ALBANY, N.Y. -- New York Attorney General Eric Schneiderman has begun examining America's biggest credit-rating agencies' compliance with agreements reached by his predecessor, Gov. Andrew Cuomo, that ended an investigation into mortgage-backed securities.
The mid-2008 agreements, imposing no financial penalties, required Moody's Investors Service, Standard & Poor's and Fitch Inc. to publicly disclose due-diligence and evaluation criteria. They also required partial upfront payments to prevent banks from simply buying the better ratings for those securities.
With that market already collapsed, the agencies say they weren't rating new mortgage-backed securities. The 42-month agreements have expired.
An official with knowledge of the investigation, who was not authorized to speak publicly, said a subpoena this week went to S&P and information requests were sent to Moody's and Fitch. Under the agreement, then-attorney general Cuomo agreed to "terminate all current investigation" and "not institute any action" against the agencies. They admitted no wrongdoing but agreed to co-operate with the attorney general's ongoing probe into the mortgage industry and adopt reforms.
The official noted there appeared to be little effort to monitor compliance and they are looking into whether violations would enable the office now to take another look at alleged misconduct in securities ratings that contributed to the collapse of financial markets.
S&P spokesman Edward Sweeney declined to comment Friday.
At an earnings conference call Friday, when asked about the New York probe, Moody's chief executive Raymond McDaniel said the company, from time to time, gets requests for information from parties that include state attorneys general and they co-operate with them.
Fitch did not immediately respond to a request for comment.
The U.S. Justice Department this week filed civil charges against S&P, accusing the rating agency of refusing to warn investors the housing market was collapsing in 2006 because it would have been bad for business. The department is seeking $5 billion in penalties.
S&P, a unit of New York-based McGraw-Hill Cos., called the lawsuit meritless and said, "Claims that we deliberately kept ratings high when we knew they should be lower are simply not true."
The federal Financial Crisis Inquiry Commission concluded in its final report two years ago the 2007-08 market upheaval, followed by a national recession, came from a decade of "pervasive permissiveness" by regulators with expanding debt and high-risk behaviour by homebuyers and owners, mortgage lenders, investors and financial institutions that repackaged and resold that debt.
-- The Associated Press
Republished from the Winnipeg Free Press print edition February 9, 2013 B6
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