Investor Relations 101

[Tina]

Issue Date: IR Alert - July 22, 2009

Obama Administration Proposes Restrictions on Credit-Rating Companies to Curtail Conflicts of Interest
The Obama Administration on Tuesday proposed setting disclosure requirements and limits on credit-rating companies, aiming to reduce conflicts of interest and provide more information about investment products. Standard & Poor's and Moody's Investors Service are among the firms that would be barred by the Treasury's proposal from consulting with any company they rate. "We need tough rules to regulate conflict of interests," Michael Barr, assistant Treasury secretary for financial institutions, said in a conference call, Bloomberg News reports.

The administration's proposal, part of a regulatory overhaul announced last month, follows accusations by investors and lawmakers that S&P, Moody's and Fitch Ratings gave AAA rankings to subprime mortgage bonds just before that market collapsed. That led to more than $1.5 trillion in write-downs and losses at the world's largest financial institutions since the start of 2007.

Regulators and lawmakers have questioned the independence of the firms, which are paid to grade securities by borrowers and underwriters who want to sell them.

The Treasury proposal would create an office at the Securities and Exchange Commission to supervise ratings firms. It would require the companies to disclose preliminary ratings of companies and use different symbols for structured products to make investors more aware of the risks that may be associated with asset-backed securities. The firms would also be required to hire a compliance officer.

S&P and Moody's are among the firms that have already adopted some of the proposals as they seek to restore confidence in the grading system. Officials from Moody's and Fitch said they supported the goals of improving transparency. Chris Atkins, a spokesman for S&P, said the firm was studying the proposals.