September 26, 2007 / 10:42 PM / 10 years ago

Moody's shuffles executives, seeks subprime changes

NEW YORK, Sept 26 (Reuters) - Moody’s Corp’s (MCO.N) Moody’s Investors Service, a ratings agency accused of helping inflate the subprime mortgage bubble, named three new ratings executives on Wednesday and proposed changes in the subprime rating industry.

The moves come amid criticism from lawmakers and investors that rating agencies were not quick enough to highlight problems in the subprime mortgage market.

The U.S. Securities and Exchange Commission is investigating rating agencies, including Moody’s and Standard & Poor‘s, a unit of McGraw-Hill Cos Inc MHP.N, probing areas, including whether the companies were conflicted in giving ratings to issuers of bonds backed by mortgages.

Rating agencies tell banks that bundle subprime mortgages into bonds whether their deals will qualify for particular ratings. That process may be iterative, with banks potentially adjusting proposed mortgage bond structures several times to generate as many top-rated bonds as possible.

Some critics charge that ratings agencies have an incentive to provide unduly high ratings in these deals, because otherwise the deals might never be done and the ratings agencies’ might not win as high fees.

In hearings on Wednesday, Senator Charles Schumer said it might make sense for the credit rating industry to change its structure to address questions about conflicts.

And a union pension fund brought a shareholder lawsuit against Moody’s Corp, claiming the company did not tell investors it “assigned excessively high” ratings to bonds backed by subprime mortgages.

In a statement, Moody’s said that, after talking to industry participants, it was calling for information about non-prime loans that get bundled into bonds to be verified by third parties. Issuers of non-prime mortgage bonds should provide stronger warranties to investors regarding loan information.

    The ratings agency also said that information from the third-party review to be made public to investors and other transaction parties that request it.

    The company also announced personnel changes. Andy Kimball, senior managing director responsible for Moody’s global corporate finance group, will be chief credit officer and chairman of credit policy.

    Noel Kirnon, senior managing director in structured finance responsible for global derivatives, managed funds and U.S. commercial real estate, will be responsible for global structured finance ratings, including asset finance, derivatives and U.S. public finance ratings.

    Michel Madelain, group managing director responsible for global banking, will be responsible for all global fundamental ratings, including corporate finance, banking, insurance, financial guarantors and non-banking finance.

    Both Kirnon and Madelain have been named executive vice presidents. (Reporting by Dan Wilchins; additional reporting by Rachelle Younglai and John Poirier in Washington, D.C. and Al Yoon in New York)

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