Former senior analyst blows the whistle on Moody's

20 Aug 2011

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A former senior analyst at credit-rating agency Moody's has dashed off a 78-page letter to US regulators, accusing his former employer of intimidating independent-minded analysts and making them give favourable ratings to select clients.

"The management of Moody's, the management of Moody's Corporation and the board of Moody's Corporation are squarely responsible for the poor quality of previous Moody's opinions that ushered in the financial crisis and should not be given first shot at debasing future opinions as well," said William Harrington, former senior vice-president, Moody's, in his letter to the Securities and Exchange Commission (SEC).

"The track record of management influence in committees speaks for itself - it produced hollowed-out (collateralised debt obligation) opinions that were at great odds with the private opinions of committees and which were not durable for even a short period after publication," he added.

Harrington said that he was an analyst at Moody's, rating derivatives from 1999 until last year when he resigned. He referred to the basic conflict of interest in the firm's culture. Moody's, like other credit-rating agencies, is paid by the very companies whose securities it is expected to grade objectively.

Analysts whose reports prevent Moody's clients from getting what they want are seen as impeding deals and harming the firm's business. They are often transferred, disciplined, harassed or fired, Harrington wrote in his note to the SEC. this resulted in a culture of conflict, making the ratings "useless at best, and harmful at worst."

Added Harrington: "The goal of management is to mould analysts into pliable corporate citizens who cast their committee votes in line with the unchanging corporate credo of maximising earnings of the largely captive franchise."

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