Moody’s responds to story on ratings mistake

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Moody’s Investors Service issued this statement after a Financial Times article questioned whether the bond rater maintained AAA grades on certain European debt securities even after some senior staff knew the ratings were in error (earlier post on this here):

‘Moody’s recognizes the seriousness of questions raised by today’s Financial Times article concerning the analytical models and methodologies used in our European constant-proportion debt obligation (CPDO) ratings process. The integrity of our ratings and rating methodologies is extremely important; as such, when the questions were recently raised to us, we retained the law firm of Sullivan & Cromwell and initiated a thorough external review of our European CPDO ratings process. Upon completion of the review, we will promptly take any appropriate actions.’

Some investors decided not to wait for the lawyers’ report: Fear of possible fraud lawsuits against Moody’s drove its shares down $6.99, or 16%, to $36.91. McGraw-Hill, which owns rival bond-rater Standard & Poor’s, slid $2.41, or 5.5%, to $41.18. It also was a bad day for bond insurance firms: MBIA Inc. and Ambac Financial Group both fell to new 52-week lows.

Moody’s said the ratings in question were on about $4 billion of European debt securities.