US banks under investigation

US banks under investigation

Eight Wall Street banks are facing an investigation following allegations that they provided misleading information to several ratings agencies in order to gain a better rating for mortgage securities.

New York Attorney General, Andrew Cuomo, has launched the investigation and the banks under scrutiny are Goldman Sachs, Morgan Stanley, UBS AG, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch (the latter was taken over by the Bank of America following the collapse of Lehman Brothers).

Following the news, bank shares on Wall Street fell yesterday.

Mr Cuomo has requested information from the eight banks, as well as the three major credit rating agencies - Standard and Poor’s (S&P), Moody’s and Fitch Ratings.

As part of the investigation, Mr Cuomo will try to establish whether the banks misled investors when securities and other investments were marketed to them. Much of the investments were repackaged into wider debt offerings and then resold.

Bad US mortgage debt was one of the primary causes of the financial crisis.

The investigations came after the US senate voted in favour of tougher regulation of the credit rating agencies.

Rating agencies can influence the decision of fund managers into selling government bonds, or refuse to buy newly issued bonds.

Many believe the three main credit agencies, mentioned above, failed to recognise the size and risk of the sub-prime mortgage crisis, which resulted in multi-billion pound losses.

Finally, the news comes just one month after the US Securities and Exchange Commission (SEC) charged Goldman Sachs and one of its vice presidents with fraud.

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  1. Larry Crawford says:

    Will anything beneficial to the public come out of this?

    When 96 senators vote to kill a thorough FED audit….

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