Two days after its stock took a nosedive following a report that a computer error may have mistakenly rated some securities AAA, Moody's Corp (MCO) credit rating unit Moody's Investors Service is again facing intense scrutiny. The Wall Street Journal reported Friday that the credit rating agency at times allowed banks to determine which analysts covered their deals, switching analysts at the bank's request.
The Journal, citing people familiar with the matter, reported that an investment bank requested a switch in analysts after the one assigned to them raised questions about their deals. That analyst was a member of a group that assigned ratings to collateralized debt obligations, the newspaper said.
In a separate instance, Moody's moved another mortgage analyst to the firm's surveillance unit, which assumes a post-operative job to monitor ratings already issued. The switch occurred following complaints from an investment banker that the analyst was "too fussy," the Journal said, citing a person familiar with the situation.
Credit ratings agencies have faced a heavy amount of scrutiny following a series of rapid downgrades of mortgage-backed securities. The downgrades came on the heels of extreme financial turmoil early in the year.
The barrage of bad news have sent shares of Moody's tumbling 23 percent since Wednesday, closing at $34.51 on Thursday on the New York Stock Exchange.
"Wall Street is not switching our analysts," a Moody's spokesman told the Journal. "Moody's makes decisions based on the best interest of the rating."
Moody's managing director Richard Cantor spoke last week at a Banking Structure conference in Chicago, saying his company needs to do a "better job communicating" the potential conflict of interest of the credit rating system. He added that Moody's had done "not nearly enough" to anticipate the magnitude of subprime shocks.
Fimalac SA's (LBCP) Fitch Ratings also admit they have switched analysts at the request of bankers, the newspaper reported.
The Journal added that a third credit rating agency, McGraw-Hill Cos (MHP)'s Standard & Poor's also replaced some analysts at the bequest of bond issuers.
Moody's largest shareholder is Warren Buffett's Berkshire Hathaway Inc., which holds a 19.6 percent stake in the company. At a new conference in Madrid, Buffett offered his support for the company."I don't think one day will permanently change the franchise value of Moody's," the world's richest man said a news conference in Madrid.
On Thursday he commented that anyone caught doing wrong at Moody's should leave the company.
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