Moody’s to pay $864 mil­lion in sub­prime rat­ings set­tle­ment

Houston Chronicle - - BUSINESS - By Matt Scully and David McLaugh­lin

Moody’s Corp. agreed to pay al­most $864 mil­lion to re­solve a mul­ti­year U.S. in­ves­ti­ga­tion into credit rat­ings on sub­prime mort­gage se­cu­ri­ties, help­ing to clear the way for the firm to move be­yond its cri­sis-era lit­i­ga­tion.

Moody’s reached the agree­ment with the U.S. Jus­tice Depart­ment and 21 states, which ac­cused the com­pany of in­flat­ing rat­ings on mort­gage se­cu­ri­ties that were at the cen­ter of the 2008 fi­nan­cial cri­sis, the Jus­tice Depart­ment said Fri­day. Texas is not one of the 21 states.

The penalty is about a third of the $2.5 bil­lion that Moody’s earned in the four years lead­ing up to the cri­sis. Stan­dard and Poor’s set­tled sim­i­lar claims with the U.S. for $1.5 bil­lion last year.

While Moody’s says it failed to abide by its own stan­dards in rat­ing some se­cu­ri­ties, it said the set­tle­ment doesn’t con­tain a find­ing it vi­o­lated the law or any ad­mis­sion of li­a­bil­ity.

“The agree­ment ac­knowl­edges the con­sid­er­able mea­sures Moody’s has put in place to strengthen and pro­mote the in­tegrity, in­de­pen­dence and qual­ity of its credit rat­ings,” the com­pany said in a state­ment. “Moody’s has agreed to main­tain, for the next five years, a num­ber of ex­ist­ing com­pli­ance mea­sures and to im­ple­ment and main­tain cer­tain ad­di­tional mea­sures over the same pe­riod.”

Since the fi­nan­cial cri­sis, the bulk of gov­ern­ment set­tle­ments have been shoul­dered by the big­gest banks, which have paid more than $162 bil­lion in fines and penal­ties. The Obama ad­min­is­tra­tion has been crit­i­cized for years for fail­ing to hold in­di­vid­u­als ac­count­able for mis­con­duct lead­ing to the cri­sis.

Still, the set­tle­ment over rat­ings by Moody’s In­vestors Ser­vice helps the ad­min­is­tra­tion move closer to wrap­ping up in­ves­ti­ga­tions of Wall Street firms for their ac­tions lead­ing up to the 2008 mort­gage melt­down, a catas­tro­phe that the Fi­nan­cial Cri­sis In­quiry Com­mis­sion said wiped out $11 tril­lion of Amer­i­can house­hold wealth. The credit rat­ings in­dus­try has been the tar­get of these in­ves­ti­ga­tions for years.

The Jus­tice Depart­ment sued Bar­clays in De­cem­ber for fraud over its sale of mort­gage bonds af­ter the bank balked at pay­ing the amount the gov­ern­ment sought in ne­go­ti­a­tions. The next day, Deutsche Bank and Credit Suisse Group said they had agreed to pay a com­bined $12.5 bil­lion to re­solve sim­i­lar cases, though fi­nal set­tle­ments haven’t yet been an­nounced.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.