The head of structured finance at New York-based rating agency Moody's is leaving after the firm announced disciplinary proceedings over mis-rating of European constant proportion debt obligations (CPDOs).
Noel Kirnon will leave the firm at the end of this month, Moody's said today. He will be replaced by Andrew Kimball as acting head of the structured finance business. Kimball was previously chief credit officer and chairman of the credit policy committee; he wil be replaced temporarily by Richard Cantor, formerly managing director of the credit policy research group.
Moody's hired the New York law firm Sullivan & Cromwell in May this year to investigate allegations that its European CPDO team had covered up problems with the firm's models - specifically, that they tended to award unjustified AAA ratings to some products. This error was fixed in early 2007, but some Moody's staff altered the agency's rating methodology so that existing ratings would not be cut even after the model was fixed, according to the initial reports.
Moody's now says there was no deliberate attempt to cover up the effect of fixing the model error by changing the rating methodology. However, it said "some committee members considered factors inappropriate to the rating process when reviewing CPDO ratings following the discovery of the model error. According to Moody's Code of Professional Conduct, a committee may consider only credit factors relevant to the credit assessment and may not consider the potential impact on Moody's, or on an issuer, an investor or other market participant".
The 11 CPDOs involved, totalling less than $1 billion, would have been downgraded from AAA to AA once the error was fixed if not for the committee's unauthorised intervention, the agency added. It has now initiated disciplinary proceedings against the staff involved, who could face sacking, and will step up oversight and compliance measures.
See also: Cover-up alleged over CPDO ratings
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