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| July 22, 2010: The U.S. financial-regulation bill may halt the already diminished market for asset-backed securities by increasing liability risk for credit raters, a securitization-industry group and bank analysts said, according to Bloomberg. The legislation, which was signed yesterday, Wednesday, July 21, 2010, by President Obama, eliminates credit-rating companies’ shield from lawsuits when underwriters include their assessments in documents used to sell debt. Moody’s Investors Service and Fitch Ratings have already told Wall Street that because of an increased risk of being sued, they will no longer let underwriters use ratings in bond-registration statements. The change, if combined with an existing U.S. Securities and Exchange Commission rule that restricts sales of asset-backed debt without ratings in offering documents, will put a “flash freeze” on the market, said Tom Deutsch, executive director of the American Securitization Forum. His concerns are shared by analysts at RBS Securities Inc. “A number of transactions that had been planned for the upcoming weeks have been shelved indefinitely given this proposal,” Deutsch said. “The transactions legally cannot go forward.” Public pension funds have accused Moody’s, Fitch and Standard & Poor’s of helping to fuel the financial crisis by giving top rankings to mortgage bonds that plunged in value when the U.S. housing market collapsed in 2007. Congress scrutinized the firms at hearings and tried to hold them more accountable by making it easier for investors to sue for inaccurate ratings. |
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