The Axe Falls at Moody’s

A month ago, I blogged about news of a bug in a Moody’s structured credit ratings model. The story was originally broken by the Financial Times and now they are reporting that Moody’s is sacking their global head of structured finance, Noel Kirnon. Moody’s have also taken the unusual step of sending a letter to all of their customers outlining the findings of an independent review conducted by the law firm Sullivan & Cromwell. Also this review concluded that employees of Moody’s did not change their rating methodology to hide the model error, a suggestion made in the original Financial Times reports, it was concluded that a monitoring committee “engaged in conduct contrary to Moody’s Code of Professional Conduct”.

They described their response to the review as follows:

“We are taking appropriate actions to address the lapse in our rating process, including:

  • Initiating disciplinary proceedings
  • Reviewing existing CPDO ratings
  • Reviewing analytical models and methodologies
  • Strengthening our process for monitoring structured finance ratings
  • Expanding our global compliance function”

A couple of weeks ago, the other major rating agency, Standard and Poors, also admitted to errors in their rating models. Stay tuned for disciplinary action there too!

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