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

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.