The New York attorney general has launched a probe against eight banks, including Citigroup, to determine whether they provided misleading information to rating agencies for inflating the grades of certain mortgage securities, a media report said.
Attributing the report to two people with knowledge of the investigation, The New York Times said, "Andrew M Cuomo has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities."
The publication said that Cuomo had issued a notice late on Wednesday night, informing the banks about the probe. The report said that the targets are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch, which is now owned by the Bank of America.
While Credit Suisse and Deutsche Bank declined to comment, other banks did not respond at all, it added.
The investigation parallels federal inquiries into the business practices of a broad range of financial companies in the years before the collapse of the housing market.
The report said that while those investigations focused on interactions between the banks and clients who bought mortgage securities, this one expands the scope of scrutiny to the interplay between banks and the agencies that rate their securities.
The agencies have been widely criticised for overstating the quality of many mortgage securities that ended up losing money once the housing market collapsed.
Cuomo's inquiry suggests that he thinks the agencies may have been duped by one or more of the banks, it added.
The companies that rated the mortgage deals are Standard & Poor's, Fitch Ratings and Moodys Investors Service.
Investors had bought mortgage securities based on their ratings. Cuomo is also interested in the revolving door of agency employees, who were hired by bank mortgage desks to help create mortgage deals that got better ratings than they deserved, the daily noted.
Image: Andrew M Cuomo
