Moody's Settles Ratings Inquiry -- WSJ
January 14 2017 - 3:02AM
Dow Jones News
By Aruna Viswanatha and Josh Beckerman
Moody's Corp. said Friday it agreed to pay $864 million to the
U.S. Department of Justice and several states in connection with
bond grades it issued before the 2008 housing-market collapse.
The agreement marks what is expected to be the last in a series
of deals in the waning days of President Barack Obama's
administration closing investigations into the financial
crisis.
Late last month, the Justice Department struck
multibillion-dollar settlements with Deutsche Bank AG and Credit
Suisse Group AG over toxic securities and separately filed a
lawsuit against Barclays PLC alleging misconduct in billions of
dollars in mortgage securities sold in the mid-2000s.
Barclays said it would seek to dismiss the case and said it
believed the claims were "disconnected from the facts."
Moody's had said in October it expected the Justice Department
to sue the company in connection with its mortgage-bond ratings,
but many companies -- and government officials -- have scrambled to
close out long-running investigations in advance of President-elect
Donald Trump taking office next week.
"Moody's failed to adhere to its own credit rating standards and
fell short on its pledge of transparency in the run-up to the Great
Recession, " said Bill Baer, the Justice Department's No. 3
official.
Moody's said in a statement it determined the agreement removed
"significant legacy legal risk" and avoided "costs and uncertainty
associated with continued investigations and litigation." The firm
said it "stands behind" the integrity of its ratings and
methodologies.
The firm said in the agreement that it, at times, deviated from
methodologies it said it would use to rate mortgage bonds and used
a more lenient standard on some complicated bonds than it had
disclosed.
Moody's didn't admit in the out-of-court settlement that the
conduct violated the law.
"Moody's stands behind the integrity of its ratings,
methodologies and processes, and the settlement contains no finding
of any violation of law, nor any admission of liability," it
said.
Nearly every top global bank has paid tens of billions of
dollars to resolve claims that they packaged risky mortgages into
securities and marketed them to investors as safer than they knew
them to be. Ratings firms, which gave many of the bonds top grades,
had initially eluded liability and argued their analysis was
protected as free speech under the First Amendment.
After fighting a Justice Department lawsuit for two years,
Moody's rival, S&P Global Ratings, agreed in 2015 to pay $1.5
billion to resolve similar claims.
The Moody's settlement includes a $437.5 million civil penalty
to the Justice Department and $426.3 million to 21 states and the
District of Columbia.
Moody's said it would record the financial impact of the
payments in its fourth-quarter 2016 results. It estimated the
impact of an after-tax charge of about $702 million, or about $3.62
a share.
Under the pact, Moody's agreed to maintain multiple policy
changes, including separating its commercial and credit-rating
functions and exclude analysts from any commercial discussions.
Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com and Josh
Beckerman at josh.beckerman@wsj.com
(END) Dow Jones Newswires
January 14, 2017 02:47 ET (07:47 GMT)
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