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Wall Street Banks Investigated Over Misleading Rating Agencies (C, CS, DB, GS, BAC)


The attorney general of New York, Andrew Cuomo, is investigating whether eight Wall Street banks misled ratings agencies to inflate the grades of certain mortgage securities. According to the New York Times, last night subpoenas were sent to eight banks viz. Citigroup (NYSE: C), Credit Agricole, Credit Suisse (ADR) (NYSE: CS), Deutsche Bank (NYSE: DB), Goldman Sachs (NYSE: GS), Merrill Lynch – now owned by Bank of America (NYSE: BAC) – Morgan Stanley (NYSE: MS) and UBS (NYSE: UBS).

In this case the companies that had rated the mortgage deals are Standard & Poor's, Fitch Ratings and Moody's Investors Service. These agencies have come under criticism for overstating the quality of mortgage securities that later slumped in the wake of the housing collapse thus triggering the financial crisis. The inquiry initiated by the attorney general suggests that he thinks the agencies may have been duped by one or more of the banks under investigation.

All angles are being looked at, including the rating agencies’ fees arrangement and the banks' practices of hiring employees of rating agencies to structure mortgage deals.

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Posted-In: Andrew CuomoNews Markets