New credit-rating code is proposed

ASSOCIATED PRESS

A group representing finance professionals at U.S. corporations, along with its British and French counterparts, proposed a new code of conduct yesterday for Wall Street credit-rating agencies to restore confidence in a system damaged by the accounting scandals.

The Association for Financial Professionals and two other groups said the proposed code would require the rating agencies to comply with practices that prevent conflicts of interest and abuse of corporate information not available to the public.

The groups cited the massive scandals at Enron, WorldCom, Italy’s Parmalat and other big companies, saying they had heightened concern “about the credibility and reliability of credit-rating agencies and the credit-rating process.”

The professionals’ groups said they were stepping in with a code of conduct because regulators, including the U.S. Securities and Exchange Commission (SEC) and the European Parliament, have examined the issue but not acted to tighten the reins on the three big credit raters.

The agencies — Moody’s Investors Service, Standard & Poor’s and Fitch Ratings — were among the players blamed by U.S. lawmakers for the stunning accounting failure at Enron Corp. They maintained high ratings for Enron even as its stock plummeted in late 2001 up until four days before its bankruptcy filing on Dec. 2.

Officials of the rating agencies have said Enron executives misled them about a complex web of partnerships used to conceal more than $1 billion in debt from investors and the SEC. The off-the-books partnerships, improperly buttressed by Enron stock, ultimately brought down the energy-trading titan.

Standard & Poor’s spokeswoman Rebecca Hill said yesterday the company has a “long history of independence, objectivity and analytical rigor” and looks forward to discussing the proposed conduct code. Fitch expressed support for the code’s principles, but said “some of the suggested ’practices’ need careful consideration.”

A Moody’s spokesman had no immediate comment.

The rating agencies’ grading of companies’ creditworthiness is closely watched by the markets and can determine whether banks and other financial institutions invest in a company. Despite their power, the SEC allows the agencies to largely police themselves.

The SEC in 2002 began examining the role of the agencies and considering whether they should be more strictly regulated. It looked into possible conflicts of interest stemming from the raters’ being paid by companies they are evaluating, as well as potential stifling of competition with three big companies dominating the field.

An SEC spokesman didn’t return a phone call seeking comment.

The three groups — Bethesda-based Association for Financial Professionals, Britain’s Association of Corporate Treasurers and France’s Association Francaise des Tresoriers d’Entreprise — are opening the proposed code to comment from interested parties through May 31.