Updated Feb. 6, 2015 6:36 p.m. ET
Multiple states are probing how Moody’s Investors Service graded bonds before the 2008 financial crisis as scrutiny of the second-largest U.S. ratings agency increases, according to people familiar with the matter.
The reviews are in early stages and it isn’t known yet if the discussions will lead to any action, these people said. The broad assessment of Moody’s business practices includes states other than Connecticut and Mississippi, which previously filed lawsuits against Moody’s arguing the firm inflated mortgage-bond ratings to win business.
A Moody’s spokesman declined to comment about the potential of other state cases.
The interest from multiple states, which hadn’t previously been reported, is the latest example of how attention is shifting to Moody’s in the wake of a record industry settlement reached this week with larger rival Standard & Poor’s Ratings Services. S&P agreed to pay $1.5 billion to end more than 20 lawsuits from the Justice Department, various states and the country’s largest public pension fund alleging the firm compromised standards.
Investors rely on the bond grades issued by Moody’s, Standard & Poor’s Ratings Services and Fitch Ratings. Collectively, they issue about 95% of ratings.
In recent months the Justice Department quietly ramped up a separate investigation of Moody’s as it met with multiple former executives to discuss how they rated complex securities before the crisis, said people familiar with the situation. It is unclear if the federal investigation will result in a lawsuit, the people said.
On a fourth-quarter earnings conference call held Friday, Moody’s Chief Executive
declined to discuss the Justice Department probe and told analysts that no new lawsuits against the company had been filed since 2013. The suits under way, which include cases brought by the attorneys general offices of Connecticut and Mississippi and the California Public Employees’ Retirement System, or Calpers, are “uniformly” in the early stages, he said.
“There’s not a lot of new news on the litigation front,” Mr. McDaniel said. A company spokesman added: “We continue to believe the states’ and Calpers cases are without merit as to Moody’s.”
- Justice Department Investigating Moody’s (Feb. 1)
- New Moody’s Report Criticizes Rivals (Jan. 29)
- Hong Kong Regulator Alleges Misleading Research (Jan. 18)
Moody’s shares jumped 5.1% Friday as the company reported a 14% rise in fourth-quarter earnings compared with a year earlier, topping analysts’ expectations. Revenue in the period ended Dec. 31 rose 13% to $877.5 million.
The Moody’s Investors Service debt-rating unit reported $565.1 million in revenue for the fourth quarter, an increase of 7%. Meanwhile, its analytics unit, which accounts for about one-third of revenue, rose 23% to $312.4 million.
Moody’s also got an earnings boost from paying a lower corporate tax rate of 28.1% in the fourth quarter compared with 30.6% a year earlier.
— Michael Calia contributed to this article.
Write to Timothy W. Martin at firstname.lastname@example.org
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