Shares of credit ratings agencies slipped Friday after a published report said federal regulators were investigating their role in the mortgage deals that helped precipitate the financial meltdown.
The Wall Street Journal reported in its Friday editions that the Securities and Exchange Commission is weighing civil fraud charges against the companies. The investigation focuses on whether the ratings agencies failed to adequately research the pools of subprime mortgages and other loans, the report said.
Citing people familiar with the matter, The Journal said the companies could face allegations that they relied on incomplete or out-of-date information or ignored clear signs of problems among subprime loans.
A message left with Moody's was not immediately returned. Standard & Poor's said it had no comment.
Shares of Moody's Corp., which owns Moody's Investor Service, were down $2.77, or 7.2 percent, at $35.50 in midday trading. Shares of The McGraw-Hill Companies Inc., which owns Standard & Poor's, fell $1.52, or 3.7 percent, to $39.56.
The news of the investigation is just the latest bad news for the sector.
On Thursday, Moody's Corp. led the S&P 500 down as a percentage decliner, with one analyst saying that ongoing problems in global credit markets could curtail business.
Lazard Capital Markets analyst William Bird noted that the financial health of Moody's is dependent on the health of the global debt market. That's because the company charges fees to rate new and outstanding debt.
But with so much uncertainty over the credit markets in Europe and the United States, it's hardly a bull market for borrowing. That means Moody's won't likely jump in value any time soon. Bird downgraded the company's stock to "Neutral" from "Buy," saying that the pipeline of future debt offerings that Moody's would be hired to rate could be choked off. Ok will