Wall Street reels under three-pronged attack

Friday, May 14, 2010
By Paul Martin

Christine Seib
May 14, 2010

Wall Street emerged yesterday from a week of agony in which it had come under siege from regulators, prosecutors and Capitol Hill and with its first taste of the tougher regulatory regime to come.

Senators voted through on Thursday a change to the way in which Wall Street does business, stripping banks of the power to go directly to individual ratings agencies to get bonds rated.

Politicians want the US Securities and Exchange Commission to set up an independent board to decide which agency provides the rating. The aim is to remove any temptation for ratings agencies to give glowing ratings to the banks’ bonds in return for repeat business.

It also emerged that the New York attorney-general had subpoenaed eight banks — Goldman Sachs, Morgan Stanley, Deutsche Bank, Merrill Lynch, UBS, Citigroup, Credit Suisse and Crédit Agricole — for information on their dealings with ratings agencies. Andrew Cuomo is thought to suspect that banks may have manipulated the agencies’ models to get top ratings for poor mortgage products, or even lied to the agencies about the quality of the mortgages in the products.

Senators also took a chunk out of retail banks’ business by voting to force credit card companies to cut fees for businesses that accepted debit card transactions.

Mr Cuomo’s investigation came on top of a SEC civil investigation into the banks’ sales of mortgage products to investors during the housing boom, and a simultaneous criminal investigation by federal prosecutors into the same area. Goldman Sachs was charged by the SEC with securities fraud last month over its sale of a synthetic collateralised debt obligation.

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