Moody's Settles Ratings Inquiry -- WSJ

By Aruna Viswanatha and Josh Beckerman 

Moody's Corp. said Friday it agreed to pay $864 million to the U.S. Department of Justice and several states in connection with bond grades it issued before the 2008 housing-market collapse.

The agreement marks what is expected to be the last in a series of deals in the waning days of President Barack Obama's administration closing investigations into the financial crisis.

Late last month, the Justice Department struck multibillion-dollar settlements with Deutsche Bank AG and Credit Suisse Group AG over toxic securities and separately filed a lawsuit against Barclays PLC alleging misconduct in billions of dollars in mortgage securities sold in the mid-2000s.

Barclays said it would seek to dismiss the case and said it believed the claims were "disconnected from the facts."

Moody's had said in October it expected the Justice Department to sue the company in connection with its mortgage-bond ratings, but many companies -- and government officials -- have scrambled to close out long-running investigations in advance of President-elect Donald Trump taking office next week.

"Moody's failed to adhere to its own credit rating standards and fell short on its pledge of transparency in the run-up to the Great Recession, " said Bill Baer, the Justice Department's No. 3 official.

Moody's said in a statement it determined the agreement removed "significant legacy legal risk" and avoided "costs and uncertainty associated with continued investigations and litigation." The firm said it "stands behind" the integrity of its ratings and methodologies.

The firm said in the agreement that it, at times, deviated from methodologies it said it would use to rate mortgage bonds and used a more lenient standard on some complicated bonds than it had disclosed.

Moody's didn't admit in the out-of-court settlement that the conduct violated the law.

"Moody's stands behind the integrity of its ratings, methodologies and processes, and the settlement contains no finding of any violation of law, nor any admission of liability," it said.

Nearly every top global bank has paid tens of billions of dollars to resolve claims that they packaged risky mortgages into securities and marketed them to investors as safer than they knew them to be. Ratings firms, which gave many of the bonds top grades, had initially eluded liability and argued their analysis was protected as free speech under the First Amendment.

After fighting a Justice Department lawsuit for two years, Moody's rival, S&P Global Ratings, agreed in 2015 to pay $1.5 billion to resolve similar claims.

The Moody's settlement includes a $437.5 million civil penalty to the Justice Department and $426.3 million to 21 states and the District of Columbia.

Moody's said it would record the financial impact of the payments in its fourth-quarter 2016 results. It estimated the impact of an after-tax charge of about $702 million, or about $3.62 a share.

Under the pact, Moody's agreed to maintain multiple policy changes, including separating its commercial and credit-rating functions and exclude analysts from any commercial discussions.

Write to Aruna Viswanatha at [e-mail] and Josh Beckerman at [e-mail]

(END) Dow Jones Newswires

January 14, 2017 02:47 ET (07:47 GMT)

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