Asserting that global rating agency Moody's gave up its "analytical distinctiveness", a former employee has claimed that the entity even intimidated analysts to ensure that they did not upset investment bankers.
These comments were made by Mark Froeba, a former senior employee at Moody's Investor's Service, in his prepared testimony to be presented to the US financial crisis inquiry commission, which is examining the various causes of the financial crisis.
"By the time the bubble arrived, Moody's had deliberately abandoned its stature and surrendered this power. Moody's simply gave up its analytical distinctiveness," Froeba said.
In the wake of the global financial meltdown, rating agencies had come under severe criticism for allegedly not providing a clear picture about complex financial instruments, which reportedly sparked the financial crisis.
These instruments were sold by some of the major Wall Street entities. Froeba also pointed out that in addition to "intimidating analysts who did not embrace the new values, they also emboldened bankers to resist Moody's analysts if doing so was good for Moody's business".
Moody's managers deliberately engineered a change to its culture intended to ensure that rating analysis never jeopardised market share and revenue, he noted.
According to him, the company re-educated its rating analysts, primarily structured finance analysts, "that cooperation with the new culture would be rewarded and opposition punished".
Froeba had served as senior vice-president for US derivatives at Moody's Investors Service, which is part of Moody's.
He said Moody's campaign of intimidation included "cooperative analysts got good reviews, promotions, higher pay, bigger bonuses, better grants of stock options and restricted stock".
