Ratings agencies suffer 'conflict of interest', says former Moody's boss
William Harrington attacks agencies for being paid by banks and companies they are supposed to rate objectively
A former credit-ratings agency executive has launched a stinging attack on the powerful organisations that can damage countries' economies and wreak havoc in the markets with the stroke of a pen.
William Harrington, a former senior president at Moody's, claims the organisation's senior management interfere with analysts' independent assessments.
Ratings agencies have attracted international opprobrium after Standard & Poor's, another of the three big agencies alongside Moody's and Fitch, stripped the United States of its gold-standard AAA rating.
Harrington, who worked at Moody's for 11 years until he resigned last year, said ratings agencies suffer from a conflict of interest because they are paid by the banks and companies they are supposed to rate objectively.
"This salient conflict of interest permeates all levels of employment, from entry-level analyst to the chairman and chief executive officer of Moody's corporation," Harrington said in a filing to the US financial regulator the securities and exchange commission (SEC), which is considering new rules to reform the agencies.
Harrington claims that Moody's uses a long-standing culture of "intimidation and harassment" to persuade its analysts to ensure ratings match those wanted by the company's clients. He says Moody's compliance department "actively harasses analysts viewed as 'troublesome' " and said management "rewarded lenient voting".
"The goal of management is to mould analysts into pliable corporate citizens who cast their committee votes in line with the unchanging corporate credo of maximising earnings of the largely captive franchise," he said in the 78-page filing submitted earlier this month.