Moody's analysts 'were bullied for rosy ratings'
Washington, June 2, 2010
Some former Moody's analysts said they felt intimidated by bosses to assign rosy ratings to risky debt products, according to testimony to a government panel probing the causes of the financial crisis.
"While there was never any explicit directive to lower credit standards, every missed deal had to be explained and defended," said Eric Kolchinsky, who once ran the Moody's unit that rated subprime collateralized debt obligations and has become a "whistleblower" against Moody's alleged faults.
Former derivatives vice president Mark Froeba said in his written testimony that management's compulsion to boost market share made it clear that investment bankers controlled analysts, encouraging them to award high ratings for debt that deserved worse.
"Essentially, they used intimidation to create a docile population of analysts afraid to upset investment bankers and ready to cooperate to the maximum extent possible," said Froeba, who left Moody's after 10 years in 2007.
Moody's Corp, McGraw-Hill Cos' Standard & Poor's and Fimalac SA's Fitch Ratings have been widely faulted for fueling the financial crisis by assigning unreasonably high ratings for too long, and then downgrading them too fast.
Financial Crisis Inquiry Commission chairman Phil Angelides opened Wednesday's hearing by criticising Moody's Investors Service for bestowing thousands of high ratings on risky debt that later became unhinged.
"To be blunt, the picture is not pretty," Angelides told the hearing in New York. He called Moody's a "'triple-A' factory" that expanded rapidly in structured finance, causing its stock to rise more than sixfold from 2000 to 2007.
"Investors who relied on Moody's ratings did not fare so well," he said.
Warren Buffett, whose company Berkshire Hathaway Inc is one of Moody's largest investors, is testifying later Wednesday. He received a subpoena to appear after initially resisting commission invitations. - Reuters