U.S. regulators plan to probe how the major credit-rating agencies are paid and their independence from Wall Street firms that issue bonds, The Wall Street Journal reported in its online edition on Friday.
Amid the crisis in the mortgage market, the regulators have begun to examine how the ratings firms evaluated subprime-mortgage-backed securities that grew into a trillion-dollar market, the report said.
Critics have said the financial fortunes of ratings firms are closely tied to the volume of securities deals and that higher ratings often spur deals, the report said.
The U.S. Securities and Exchange Commission wants to see whether clients that sell more deals and therefore generate more revenue for ratings firms, tend to get better ratings, the report said.
While there is no evidence so far of such preferential treatment, regulators are interested in examining the question because of the lucrative nature of the mortgage market, the report said, citing one person familiar with the matter.
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New York state's attorney general, Andrew Cuomo, has subpoenaed documents from ratings firms Standard & Poor's and Fitch as part of a broader probe into the mortgage market, the report said. S&P is a unit of McGraw-Hill Cos, while Fitch is a unit of France's Fimalac SA.
Ohio Attorney General Marc Dann is looking into the way rating firms interact with Wall Street underwriters, the report said.
Moody's Corp, one of the three largest U.S. raters, confirmed that it had received various government enquiries and expected to get more.
Of course, we will fully assist with each of these enquiries, said Moody's spokesman Anthony Mirenda.
Representatives of S&P and Fitch were not immediately available for comment.
(Reporting by Lewis Krauskopf)