Moody's heads out of the crisis they caused with record salaries
agency executives paid a bonus for helping to "restore confidence "while the U.S. Congress as an example of bad practice.
rating agencies have played out the financial crisis. Its credibility is at stake, the United States Congress has proclaimed them guilty of the crisis and its profits have fallen to the level of several years ago. Its executives, however, have turned the page to record salaries and bonuses, at least in the case of Moody's. The recent joint announcement by the company states that the remuneration of its chief executive, Raymond McDaniel, was up 69% in 2010 to the 9.15 billion dollars (about 6.4 billion euros).
The five highest paid executives of the firm distributed 20 million dollars, an increase of 60%. Moody's places great emphasis on variable pay, and justified by the increase in benefits by 2010, but like many companies, variable pay varies more upward than downward. The dome of Moody's won twice in 2005 although since then the operating income fell 17% and net profit about 10%. The firm made a cut in salary when the results are collapsed, but the upturn has placed them at record levels. Managers now earn more than in 2006, in full bubble, although then the operating profit was 63% higher. The crisis has left them profitable.
Among the items of compensation in 2010, a attention. Moody's awarded to its chairman, among other reasons, for their achievements in "helping to restore confidence in the ratings of Moody's Investors Service to raise awareness about the role and function of the ratings (...)". The award was approved weeks after the U.S. Congress has brought to the rating agencies among the culprits of the financial crisis has highlighted just Moody's as a case study about the wrongdoing that caused the crisis.
McDaniel was one of the executives who appeared before the congressional committee of inquiry into the causes of the crisis and the final report does not leave a very good place him or other executives Moody's acting under his orders.
"We conclude that the failure of credit rating agencies were essential cogs in the machinery of financial destruction. The three agencies were key tools of financial chaos. The mortgage-related securities at the heart of the crisis would not have been marketed and sold without their stamp of approval. The investors relied on them, often blindly. (...) This crisis could not have happened without the agencies. His skills helped the market to soar and their sales in 2007 and 2008 wreaked havoc " the report concludes.
The document notes that from 2000 to 2007 Moody's considered the highest credit rating (triple A) to 45,000 mortgage-related securities. The report looks outdated calculation models, the pressures on financial firms and how We placed the desire to gain market share at the quality of ratings. The commission said there was a "clear failure of corporate governance at Moody's, which failed to ensure the quality of tens of thousands of grades."
CEO of Moody's came to testify before the committee accompanied by Warren Buffet, the main shareholder of the agency. But Buffett was washed hands. "When asked if he was satisfied with the internal controls of Moody's, Buffett said he knew nothing about management agency: 'I had no idea, I've never been to Moody's, do not know where they are. " Buffet said he invested in the company because the business of rating agencies was "a natural duopoly, giving him an incredible power over prices," says the report of the committee.
Other testimony showed that meet the standards no priority was to Moody's. A former director of compliance, Scott McCleskey, told the commission how at a dinner then responsible for the area of \u200b\u200bskills, Brian Clarkson, dubbed the Dictator, boasted of the good results achieved by mortgage securities. The McCleskey approached and before All board members were snapped: "How much revenue has generated compliance this quarter? Nothing, nothing." When asked about it, Clarkson told the committee he did not recall that conversation.
Another former senior executive said how to get to Moody's in 1997, the biggest fear was to miss analysts in a grade. When he left, what everyone feared was that he considered that threatened the market share of the firm.
The commission revealed that a report sent to McDaniel emphasized that the three factors of competition between agencies, price, service and quality of ratings, the latter had become less important and even criminalized business, which "could put the entire financial system at risk," the report said.
Moody's went to take up to two months to discuss a structured financial product put 30 stamps each day triple. In 2006 he became a "factory of triple A". The results were disastrous: 83% of mortgage securities rated AAA that year ended up being degraded. Despite
"abysmal failure" which the commission relates, Moody's has maintained intact its cash bonus plan in 2004 and now his boss rewards for their efforts to restore credibility precisely has been damaged while he was in front company. The company has been awarded a bonus of 157% of its target. And the incentive of top executives has been "adjusted" another 10% higher by a survey on the satisfaction of investors.
The report also shows how the agencies were wrong again and again to assess the solvency of the institutions that had just dropping like Bear Stearns, Lehman or AIG. Moody's had to AIG a rating similar to that given to Santander or BBVA, and even after the bankruptcy of Lehman, when the Fed maneuvered desperately to save the insurer, the downgrade was only two steps, to A2, higher than that given to the vast majority English institutions.
In the transcript of McDaniel's statement, a sentence is highlighted: "Investors should not rely on the ratings [agency] to buy, sell or hold securities." It's advice the president of Moody's.
http://www.elpais.com/articulo/economia/jefes/Moody/s/salen/crisis/provocaron/sueldos/record/elpepueco/20110327elpepieco_1/Tes
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