U.S. probes Standard & Poor’s role in mortgage crisis
NEW YORK — The US Justice Department is investigating top ratings agency Standard & Poor’s and its practices regarding mortgage securities in the run-up to the financial crisis, The New York Times reported Thursday.
According to the paper, the probe began before S&P cut the United States’ sterling AAA credit rating earlier this month — a move which sent global markets into turmoil and triggered a political firestorm at home.
The Justice Department is studying whether S&P analysts wanted to lower the ratings of certain bonds backed by mortgage debt, but were prevented from doing so by superiors due to business concerns, the paper said, citing two people interviewed by government officials and another who was briefed on the interviews.
If there is sufficient evidence to support the case, it would likely be a severe blow to S&P analysts’ reputation of independence, and could lead to civil claims for compensation, according to the Times.
The US financial watchdog Securities and Exchange Commission (SEC) was also investigating possible wrongdoing at S&P, the paper added, citing a person interviewed on the matter.
It was not clear if Justice was also investigating the other two main ratings agencies, Moody’s and Fitch. The person interviewed about the SEC probe said that agency may be looking into the other two firms.
While the Justice probe got rolling earlier this year before the debt rating issue reached fever pitch in Washington, according to people aware of the investigation, US lawmakers are now investigating why S&P downgraded the US rating.
Financial companies like banks rely heavily on the ratings system, and they pay agencies to receive a rating.
In the years leading up to the financial crisis, banks sought to make sure the agencies would award favorable ratings before signing on to work with them, according to the Times.