FORMER Moody’s analysts say they felt pressure from bosses obsessed with market share to assign rosy ratings to risky debt products, while the company’s current chief executive defended the rating agency’s business model, according to testimony released yesterday.
Three former officials at Moody’s described an atmosphere of intimidation and fear, according to prepared comments to the Financial Crisis Inquiry Commission, which is holding a hearing in New York featuring Moody’s chief executive Raymond McDaniel and legendary investor Warren Buffett.
Eric Kolchinsky, a former managing director at Moody’s US derivatives business, told the commission that bosses, desperate to increase Moody’s market share, forced analysts to rate huge numbers of products without giving them sufficient time to analyse the mortgages.
“It was very clear to me that my future at the firm and my compensation would be based on the market share,” he said.
The former analyst’s claims were backed by other Moody’s employees. Mark Froeba, a former senior vice-president in the same business, told the commission that analysts were frequently called on to explain to their bosses even tiny reductions in the company’s market share.
But investment guru Warren Buffett yesterday defended the credit rating agencies for failing to spot the looming credit crunch. Buffett, whose investment firm Berkshire Hathaway owns 13 per cent of ratings agency Moody’s, told the panel that “they made a mistake that virtually everybody in the country made” by missing the house price bubble.
Meanwhile, McDaniel admitted that the company’s poor performance was “deeply disappointing” but blamed “vulnerabilities in the global infrastructure of the financial system” for the financial meltdown.