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Moody's Says Some Employees Breached Code of Conduct (Update1)
By Emma Moody [?]
July 1 (Bloomberg) -- Moody's Corp. , owner of the second- largest credit-ratings company, ousted the head of its structured finance unit and said employees violated internal rules in assigning Aaa ratings to last year's worst performing securities.
Some Moody's Investors Service staff breached rules for ranking European constant proportion debt obligations, or CPDOs, the company said in a statement distributed today. In a separate release, Moody's said Noel Kirnon, who also oversaw the credit policy committee, is leaving the company.
U.S. and European regulators are tightening rules for Moody's, Standard & Poor's and Fitch Ratings. Lawmakers such as Congressman Barney Frank demanded tougher regulation, saying ratings companies misled investors by providing top rankings on subprime-related securities that lost as much as 80 percent of their value. Moody's said today that employees, not the company's practices, were to blame.
``I am deeply disappointed by the conduct that occurred in this incident,'' Chief Executive Officer Raymond McDaniel said in the statement.
Moody's said on May 21 that it began a review of its CPDO ratings after a report by the Financial Times said some senior staff were aware in early 2007 of a computer error. The glitch gave the top Aaa rating to CPDOs that should have been ranked as much as four levels lower, the FT said. Moody's altered some assumptions to avoid having to assign lower grades after fixing the error, the FT said.
Moody's fell 34 cents to $34.10 in New York Stock Exchange composite trading at 10 a.m. The stock is 25 percent since the FT report.
Sullivan & Cromwell
Moody's hired law firm Sullivan & Cromwell to conduct the review.
The firm found that Moody's personnel didn't make changes to the methodology for rating European CPDOs to mask any model error, Moody's said today. The monitoring committee did engage in ``conduct contrary to Moody's code of professional conduct,'' the ratings company said.
Under those guidelines, a committee may only ``consider credit factors relevant to the credit assessment and may not consider the potential impact on Moody's, or on an issuer, an investor or market participant,'' Moody's said.
Employees involved face disciplinary proceedings that may include termination, Moody's said.
Kirnon will leave the company July 31 and will be replaced on a temporary basis by Andrew Kimball, 58. A search for a permanent replacement is underway, Moody's said. Moody's didn't give a reason for Kirnon's departure.
Richard Cantor, 50, will take over as chief credit officer and chairman of the company's credit policy committee.
To contact the reporter on this story: Emma Moody at emoody@bloomberg.net
Last Updated: July 1, 2008 10:06 EDT
By Emma Moody [?]
July 1 (Bloomberg) -- Moody's Corp. , owner of the second- largest credit-ratings company, ousted the head of its structured finance unit and said employees violated internal rules in assigning Aaa ratings to last year's worst performing securities.
Some Moody's Investors Service staff breached rules for ranking European constant proportion debt obligations, or CPDOs, the company said in a statement distributed today. In a separate release, Moody's said Noel Kirnon, who also oversaw the credit policy committee, is leaving the company.
U.S. and European regulators are tightening rules for Moody's, Standard & Poor's and Fitch Ratings. Lawmakers such as Congressman Barney Frank demanded tougher regulation, saying ratings companies misled investors by providing top rankings on subprime-related securities that lost as much as 80 percent of their value. Moody's said today that employees, not the company's practices, were to blame.
``I am deeply disappointed by the conduct that occurred in this incident,'' Chief Executive Officer Raymond McDaniel said in the statement.
Moody's said on May 21 that it began a review of its CPDO ratings after a report by the Financial Times said some senior staff were aware in early 2007 of a computer error. The glitch gave the top Aaa rating to CPDOs that should have been ranked as much as four levels lower, the FT said. Moody's altered some assumptions to avoid having to assign lower grades after fixing the error, the FT said.
Moody's fell 34 cents to $34.10 in New York Stock Exchange composite trading at 10 a.m. The stock is 25 percent since the FT report.
Sullivan & Cromwell
Moody's hired law firm Sullivan & Cromwell to conduct the review.
The firm found that Moody's personnel didn't make changes to the methodology for rating European CPDOs to mask any model error, Moody's said today. The monitoring committee did engage in ``conduct contrary to Moody's code of professional conduct,'' the ratings company said.
Under those guidelines, a committee may only ``consider credit factors relevant to the credit assessment and may not consider the potential impact on Moody's, or on an issuer, an investor or market participant,'' Moody's said.
Employees involved face disciplinary proceedings that may include termination, Moody's said.
Kirnon will leave the company July 31 and will be replaced on a temporary basis by Andrew Kimball, 58. A search for a permanent replacement is underway, Moody's said. Moody's didn't give a reason for Kirnon's departure.
Richard Cantor, 50, will take over as chief credit officer and chairman of the company's credit policy committee.
To contact the reporter on this story: Emma Moody at emoody@bloomberg.net
Last Updated: July 1, 2008 10:06 EDT
