This picture shows a plate at the entrance of the Deutsche Bank offices in Milan on May 6, 2010. A closely watched trial for fraud against four large investment banks, JPMorgan, UBS, Deutsche Bank and Depfa over the sale of derivatives to the city of Milan had been postponed to May 19. AFP PHOTO / DAMIEN MEYER
NY AG Subpoenas 8 Banks In Mortgage Ratings Probe (Wall Street Journal):
New York Attorney General Andrew Cuomo has subpoenaed eight banks in a probe into whether misrepresentations were made about some securities backed by mortgages in order to improve their credit ratings, a person familiar with the investigation said Thursday.
The three major rating agencies–McGraw-Hill Cos.’ (MHP) Standard & Poor’s, Moody’s Corp.’s (MCO) Moody’s Investors Service and Fimalac SA’s (FIM.FR) Fitch Inc.–also have received subpoenas in the probe, the person said. The subpoenas were issued late Wednesday, the person said.
The investigation is in its early stages and it is unclear if it could ultimately result in criminal or civil charges.
The subpoenas, which seek a broad range of documents, are focused on the banks’ interactions with the rating agencies regarding a variety of structured finance products, including collateralized debt obligations and other asset-backed securities. CDOs are securities that can include pools of mortgage bonds as part of their underlying assets.
Specifically, Cuomo is looking for direct communication through e-mails or instant messages between the investment banks’ mortgage desks and the analysts responsible for issuing ratings at the rating agencies, a person familiar with the investigation said. At some of the banks, the attorney general is looking into instances where investment banks hired former rating agency employees, the person said.
The banks are Bank of America Corp.’s (BAC) Merrill Lynch & Co., Morgan Stanley Inc. (MS), Citigroup Inc. (C), Deutsche Bank AG (DB, DBK.XE), Goldman Sachs Group Inc. (GS), UBS AG (UBS, UBSN.VX), Credit Suisse Group (CS, CSGN.VX) and Credit Agricole (CRARY, ACA.FR).
The investigation is expected to target J.P. Morgan Chase & Co. (JPM) and Barclays Capital, the securities operation of Britain’s Barclays PLC, in the coming weeks, according to another person close to the investigation.
N.Y. Attorney General Cuomo opens probe to learn if 8 banks misled credit raters (Washington Post):
New York Attorney General Andrew M. Cuomo has launched a probe into eight large banks to determine whether they provided misleading information to credit-rating agencies, according to sources with knowledge of the investigation.
Cuomo’s investigation is focusing on the relationships between the banks and the agencies that rated certain mortgage-related securities packaged by the banks and sold to clients, said the sources, who spoke on the condition of anonymity because the investigation is ongoing. Investigators are looking at whether the banks gave false information to the agencies about the assets in the securities to get better ratings, the sources said.
The probe, which is in a preliminary stage, comes as large banks face increasing scrutiny from regulators and federal law enforcement authorities for various activities during the years leading up to the financial meltdown.
Cuomo’s office issued subpoenas to Citigroup, Goldman, Morgan Stanley, Merrill Lynch (now owned by Bank of America), Credit Suisse, Deutsche Bank, Credit Agricole and UBS. The three major rating agencies — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — have also been subpoenaed, according to two sources with knowledge of the matter.
“We believe the bank acted appropriately and will cooperate with the authorities to substantiate our position,” said Ted Meyer, a spokesman for Deutsche Bank.
Representatives for Bank of America, Citigroup, UBS, Credit Suisse, Moody’s and Fitch said their firms were cooperating with the investigation. Goldman Sachs, Morgan Stanley and Standard & Poor’s declined to comment. Credit Agricole did not return a message seeking comment on Thursday.
The rating agencies have come under intense scrutiny in recent years, criticized in congressional hearings for contributing to the financial crisis by giving top ratings to mortgage securities that later collapsed as the housing market declined. On Thursday, the Senate approved an amendment to financial regulatory overhaul legislation that would impose tough restrictions on the firms that provide credit ratings.