S&P under probe for improper rating

Express (August 19, 2011)

Standard & Poor (S&P), America's largest and most reputable credit rating agency is under investigation allegedly for improperly rating dozens of mortgage securities companies in the years leading to the economic downturn. The investigation started long before S&P lowered America's credit rating to AAplus from tripple AAA.

Downgrading has added fuel to fire. The lawmakers and senior government officials have questioned agency's secretive process, its credibility and competence claiming to have found an error in its debt calculation, the New York Times (NYT) in a front page story said today.

The allegation is S&P overrated some mortgage companies. If the investigation reveals evidence of wrong-doing, it would undermine S&P's claim that it operates without external influence.

It was not known whether the Justice Department is investigating the two other rating agencies -- Moody's and Fitch.

Rating agencies have reaped huge profits as they bestowed the highest ratings on bundles of troubled mortgage loans, NYT in a report said. They failed to anticipate the collapse of the housing market that precipitated the global economic downturn.

The agencies have been accused of compromising ethics in their drive for profit. The Securities and Exchange Commission (SEC) is also investigating any wrongdoing by S&P.

The government has been lenient in dealing with companies those contributed to the collapse. All said and done the investors will still rely on the rating agencies before making any investments. Several banks seeking favourable ratings paid $100,000.

The SEC has been accused of destroying several thousands files relating to early stage investigation. The files destroyed had records of 9000 preliminary enquires. These files were related to investigations of financial institutions like Goldman Sachs, Lehman Brothers, Citigroup and Bank of America. SEC denied wrongdoing saying it is strictly complying with federal rules.

Fitch rating company in total disagreement with its rival rating agency, S&P, retained US credit rating at tripple AAA. Fitch has reposed its faith in Washington's deficit reduction effort. Fitch said it would again review its decision at the end of the year.

Moody also placed its confidence on the United States. Both Fitch and Moody said they would review their ratings if lawmakers fail to put in place the $2.1 trillion in savings.