Moody's in the dock

Date: Friday, September 28, 2007
Author: Elizabeth Pfeuti, Globalpensions.com

US - Teamsters Local 282 pension fund has filed a lawsuit against Moody’s claiming the credit rating agency misrepresented the risk involved in structured products backed by sub-prime mortgages.

The union pension fund claimed Moody’s assigned excessively high ratings to these types of bonds which were subsequently lowered in July following market tremors.

However, the company struck back. Tony Mirenda, director corporate communications said: "Moody's believes the suit is entirely without merit and we expect it to be dismissed expediently."

The suit was filed in the Manhattan District Court on Wednesday.

Global Pensions reported at the beginning of September that Charlie McCreevy, EU commissioner for internal markets and services, had questioned robustness of credit agencies’ methodology and the role they played during the US sub-prime mortgage crisis.

In a separate development, in August 2007, Global Pensions reported that Marc Dann, attorney general of Ohio, had accused Fitch, Moody’s and Standard & Poor’s of leading pension funds to believe that triple A rated tranches of collateralised debt obligations (CDOs) were near risk free.

Responding to McCreevy's criticism, Frederic Drevon, team managing director for EMEA at Moody's, said the organisation supported and actively encouraged greater disclosure and transparency in the capital markets by all market participants.

He said: "Moody's is dedicated to continuing the constructive dialogue it has had with regulators and policy makers to enhance the overall understanding of the structured finance market, the various participants in that sector, and the role of ratings and rating agencies in the market."