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Moody's stock suffers record plunge on rating error

By Walden Siew
/ Source: Reuters

By Walden Siew

NEW YORK (Reuters) - Shares of Moody's Corp fell more than 13 percent on Wednesday, the biggest one-day drop since becoming an independent company in 2000, after the rating agency said a computer snafu resulted in incorrect top ratings for complex debt.

The Financial Times first reported a coding error resulted in wrong "Aaa" ratings for debt known as Constant Proportion Debt Obligations, known as CPDOs.

Moody's shares fell over 13 percent to $37.95 in the largest one-day drop in the stock since it was spun off from Dun & Bradstreet in 2000.

A Moody's spokesman in New York said the rating agency is "conducting a thorough review" of its rating methods for European CPDOs specifically, due to the computer glitch. The review of its computer coding does not extend to subprime mortgage debt, collateralized debt obligations or corporate bonds, Moody's said.

"Moody's is simply telling the truth slowly, and there's more truth to be told," said Janet Tavakoli, a consultant and president of Tavakoli Structured Finance in Chicago.

"Up until now I thought the rating agencies were incompetent rookies in structured products," Tavakoli said. "Now I'm suspicious that they may be crooked."

Agencies like Moody's Corp , McGraw-Hill Cos. Inc.'s Standard & Poor's and Fimalac's Fitch Ratings have been under pressure by investors, regulators and critics for the past year for incorrectly rating subprime mortgage debt.

Losses from deteriorating subprime mortgage and repackaged debt have led to more than $400 billion of market losses, according to Fitch Ratings.

Shares in S&P's parent company McGraw-Hill were down almost 5 percent on Wednesday, while Fimalac's stock fell 0.65 percent.

(Reporting by Walden Siew, Editing by Chizu Nomiyama)