UPDATE 1-Major rating agencies near deal on reforms-reports
June 4th, 2008 | by admin |(Adds background, comment from SEC official)
NEW YORK, June 4 (Reuters) - The three major credit ratingagencies are near a settlement with New York Attorney GeneralAndrew Cuomo to reform some of their core business practices,including how they collect fees, The Wall Street Journal andThe New York Times said on Wednesday, citing people familiarwith the matter.
The Journal said an announcement of a settlement involvingMoody’s Corp’s (MCO.N: Quote, Profile, Research) Moody’s Investors Service, McGraw-HillCos’ (MHP.N: Quote, Profile, Research) Standard & Poor’s and Fimalac SA’s (LBCP.PA: Quote, Profile, Research) FitchRatings could come this week. The Times, meanwhile said thetalks may still fall apart.
Neither the rating agencies nor Cuomo’s office returnedcalls seeking comment.
A settlement could result in big changes for the roughly $5billion-a-year credit rating industry, similar to changes toanalyst research engineered by Cuomo’s predecessor, EliotSpitzer.
In 2002 and 2003, Spitzer pushed the financial servicesindustry to separate analyst research from investment bankingactivity. This has resulted in stock research analysts becomingmuch more likely to assign “hold” and “sell” ratings.
In the wake of the U.S. subprime mortgage crisis andensuing global credit crunch, investors, regulators andpoliticians have criticized the agencies for failing toproperly analyze securities backed by mortgages beforeassigning top ratings.
Agencies have been criticized for feeding the U.S. housingslump and credit market problems by long assigning high ratingsto securities they should have known were risky, and thendowngrading them quickly once the risks surfaced.
Under the proposed settlement, a rating agency will chargefees in stages for various analytical tasks, disclose everythree months all transactions they were asked to rate andactually do rate, the Times said.
