Moody, S&P, Fitch face securities ratings hearings


Moody‘s Investors Service, Standard & Poor‘s and Fitch Ratings faced scrutiny on Thursday by insurance regulators examining the role of the firms in evaluating fixed- income securities.

State insurance regulators are meeting in Maryland to examine the firms‘ role in rating bonds held by insurance companies, according to Bloomberg News on Thursday. A second hearing scheduled for Thursday, by the Chairman of the House Oversight and Government Reform Committee, Mr. Edolphus Towns, was postponed to September 30. The panel will look at ratings companies amid allegations of continued conflicts of interest from a former Moody‘s analyst.

The three companies have been criticised by investors and lawmakers, including Senate Banking Committee Chairman, Mr. Christopher Dodd, who said they wrongly assigned top credit rankings to US subprime-mortgage bonds just before that market collapsed in 2007.

Subprime mortgages helped spark a housing- price collapse that contributed to a worldwide financial crisis.

”2008 showed us that bond ratings can give people a false sense of security,” Mark MacQueen, who helps oversee $7.5bn in debt at Sage Advisory Services Limited in Austin, Texas, said. ”I don‘t put a lot of weight in the ratings,” he added.

Insurance regulators may move to place less emphasis on the ratings of the big three firms. On Wednesday, the National Association of Insurance Commissioners approved Realpoint LLC to evaluate commercial mortgage-backed securities. The NAIC said it was reviewing whether to create a non-profit bond-rating firm.

”The fundamental issue is if the bar is always moving, that makes it very difficult,” Connecticut Insurance Commissioner, Mr. Thomas Sullivan, said in a telephone interview. ”Magically overnight, what we thought was AAA is no longer AAA. That is a big problem,” he added.

Managing Director at New York-based Moody‘s, Mr. David Teicher, said in prepared remarks that the company had been concerned that the use of ratings for the oversight of regulated entities ”can adversely affect the behavior of market participants” and regulators.


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