Moody's rating agency faces US probe

Moody's rating agency faces US probe

Monday, February 2, 2015 1:23 am


US authorities are investigating the credit rating agency Moody’s over its glowing assessments of mortgage deals in the runup to the 2008 financial crisis, The Wall Street Journal reported Sunday.

Citing people familiar with the situation, the newspaper said Justice Department officials had met with several former Moody’s executives. It wasn’t yet clear if the probe would result in a lawsuit.

If the investigation is confirmed, Moody’s would become the second major US credit-rating firm in the Justice Department’s crosshairs, after a case against Standard & Poor’s.

S&P is expected to within days agree to pay $1.37 billion to settle lawsuits over its rosy grading of mortgage bonds in the financial crisis, sources told AFP.

Neither Moody’s nor the Justice Department were immediately reachable for comment Sunday.

US authorities are probing whether the firm compromised its standards to score deals, the Journal reported, and the focus is on residential mortgage deals from about 2004 to 2007.

Positive ratings on what turned out to be extremely risky mortgage deals, known as subprime loans, were a main cause of the 2008 financial collapse.

Investors rely on rating firms’ grades to assess risk.

Numerous banks have already paid huge fines and settlements for their roles in packaging and selling the bonds as low-risk, solid investments.

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