Rating firms under fire

The world's leading credit-rating firms have become the latest target for pointed questions from the market, particularly about their own "credit" for rating ability.

On Tuesday, the US Securities and Exchange Commission (SEC) said the three leading credit-rating firms in the that country - Standard & Poor's, Moody's Investors Service and Fitch Ratings - were beset by conflicts of interest.

The Los Angeles Times quoted the SEC as saying the credit-rating companies, whose endorsements of mortgage-backed bonds helped fuel the ill-fated boom in sub-prime lending, violated their own rules in dealing with the investment banks that issued the securities.

Analysts appeared to question whether they could thoroughly assess an avalanche of increasingly complex securities they had to review, as Wall Street and the rating companies tried to cash in on the mortgage boom.

In an April 2007 e-mail, one analyst wrote that her company's evaluation methodology did not take into account even half of the risk of a certain issue of securities. But, she added, the issue "could be structured by cows and we would rate it".

In a December 2006 e-mail, a manager at the same company wrote the rating companies were helping turn the market for complex mortgage-backed securities known as collateralised debt obligations into a "monster".

"Let's hope we are all wealthy and retired by the time this house of cards falters," the analyst wrote. SEC chairman Christopher Cox said the e-mails painted a damning picture.