S&P agrees to change some business practices

June 3, 2008 4:04:32 PM PDT
Standard & Poor's said Tuesday it has tentatively settled with New York Attorney General Andrew Cuomo to overhaul some of its business practices in the aftermath of the subprime mortgage crisis.

Deven Sharma, the rating agency's president, said the deal that is still being negotiated "will help ensure our ratings process continues to be of the highest quality."

Cuomo has been probing the way that S&P and the two other major ratings agencies, Fitch Ratings and Moody's Investors Service, charge fees to bond issuers for rating their securities.

A spokesman for Cuomo's office declined to comment.

The industry, dominated by S&P, Moody's and Fitch, has been roundly criticized for failing to accurately assess ? and warn investors about ? the risks that mortgage investments posed to financial markets.

Lawmakers in Washington and other critics say the agencies are vulnerable to conflicts of interest because they are paid by the companies whose bonds they rate. In response, the rating firms have announced steps to strengthen protections against conflicts.

Meanwhile, the Securities and Exchange Commission is considering new rules to limit conflicts of interest in the credit-rating industry and to require the rating firms to disclose detailed information on the mortgage assets underpinning the securities they rate. SEC commissioners are expected to vote on a proposal later this month.

Rating agencies have downgraded thousands of mortgage-linked securities over the past year as U.S. mortgage delinquencies have soared and the value of those investments plummeted.

Executives at S&P, Moody's and Fitch say they are cooperating with the SEC and other regulators to improve the quality of their analysis and have changed numerous business practices in response to the mortgage mess.


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