Eight Banks Under Investigation for Misleading Ratings Agencies on Mortgage Securities

Strategic Insights -

The New York Attorney General's office has launched an investigation into eight major banks, including Goldman Sachs, Morgan Stanley, and Bank of America, over allegations they provided false information to ratings agencies about the quality of mortgage securities. At issue is whether the banks misrepresented the riskiness of sub-prime mortgages to secure better ratings. The investigation is a significant development in the ongoing financial crisis, which has already seen several high-profile defaults and bailouts.

Key Takeaways:

  • Eight banks are under investigation by the New York Attorney General's office for allegedly misleading ratings agencies about the quality of mortgage securities.
  • The banks in question are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole, and Bank of America Merrill Lynch.
  • The investigation centers on whether the banks provided false information to ratings agencies to secure better ratings on risky securities based on sub-prime mortgages.
  • The banks' stocks were affected by the news, with some experiencing significant price changes in mid-morning trading: GS (-0.67%), MS (+1.62%), UBS (-1.40%), C (-1.56%), CS (-1.50%), DB (-1.85%), ACA even BAC (+0.18%).
  • The investigation is part of a broader crackdown on financial institutions that may have contributed to the financial crisis.

Statistics:

  • 8 banks are under investigation by the New York Attorney General's office.
  • 5 of the banks in question (GS, MS, UBS, C, BAC) saw significant price changes in mid-morning trading.
  • CS saw a 1.50% price decrease, while ACA saw no change in price.
  • DB saw a 1.85% price decrease.

Sources:

  • MidnightTrader via COMTEX
  • AP (Associated Press)
  • Comtex SmarTrend Alert (automated pattern recognition system)