Moody’s is dismissing its structured finance chief, Noel Kirnon, for lapses in ratings of constant proportional debt obligations. Bloomberg notes that $4 billion of these instruments were rates AAA, and some fell in value by as much as 90%.
This move nevertheless seems odd. True, this was a very large value destroying event in percentage terms. However, CPDOs were a very small market in total issuance size. Admitting to failings in this area and sacrificing a few senior employees seems a move designed to mollify critics without admitting to bad practices in bread-and-butter products, which included many structured credits. Similarly, note that the external investigation was limited to CPDOs.
From the Financial Times:
Moody’s, the credit rating agency, on Tuesday said it was beginning disciplinary proceedings against some of its staff as it admitted it had incorrectly rated about $1bn of complex debt securities due to a computer error.
The credit ratings agency said Noel Kirnon, the London-based head of its global structured finance business, would leave at the end of the month.
The move came as Moody’s admitted that an external investigation by Sullivan & Cromwell, the law firm, had shown that members of a key rating committee breached internal codes of conduct over a complex instrument known as constant proportion debt obligation (CPDOs)…
“Some committee members considered factors inappropriate to the rating process when reviewing CPDO ratings following the discovery of the model error.” Mr Kirnon was not on this committee.
However, Moody’s stressed that there was no evidence that Moody’s staff had deliberately manipulated the overall ratings methodology to conceal the bug – and pledged to ensure that the problem did not reoccur.
Note the FT report implies that Kirnon was not directly involved in the cover up. Curiouser and curiouser…..