New York attorney general looks at credit rating agencies

May 14th, 2010  |  Source:

Is Andrew Cuomo (Andrew Cuomo news) bent on further reform of the credit rating process?

The New York Times reports that the New York attorney general has initiated an investigation of eight banks with an eye on determining whether they provided misleading information to rating agencies.

The banks are Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), UBS (NYSE: UBS), Citigroup (NYSE: C), Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch. Cuomo has already taken look at various pieces of the credit ratings conundrum.

These actions led to deals in which the agencies agreed to ask for more information from issuers and changes in fee practices.

Altogether, these piecemeal actions add up to much less than significant reform, in the eyes of the agencies’ many critics. Indeed, recent congressional hearings have uncovered some sad practices that were all too rife. Big banks luring away agency employees, who turn around and interact with their former colleagues, and lots of gaming of the system.

We’ll see if anything really changes. One aspect of this mess is whether the banks provided misleading data to the agencies. That would hardly be surprising. Banks provided loan data, which agencies fed into their models.

One example of gaming: Banks would simply change the names of services to make it seem like the loans came from a diverse set services, when in fact they came from just one. We may see more action against the agencies. The SEC has already sent a wells notice to Moody’s.

By Jim Kim on

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