Police raid Milan offices of Moody’s and Standard & Poor’s

(GUARDIAN)    As stock and bond markets across the world tumbled on fears about Italy and Spain, it emerged that police acting on orders from prosecutors had raided the Milan offices of rating agencies Moody’s and Standard & Poor’s as part of continuing investigations into their role in the recent financial turmoil.

Italian shares plunged on Thursday, with some leading firms losing more than 10% of their value. But the closing level of the benchmark FTSE MIB index was not released for reasons that remained unclear more than an hour after the close.

Among the factors behind the share fall was a widening of the risk premium on Italian state debt. The extra return demanded by investors for holding benchmark 10-year Italian bonds rather than the German equivalents touched 3.7 percentage points.

Carlo Maria Capistro – chief prosecutor of Trani, a small Adriatic port – told Reuters that his office was checking to see whether the rating agencies “respect regulations as they carry out their work”. The raids took place on Wednesday as Italy’s prime minister, Silvio Berlusconi, addressed parliament on the mounting crisis.

He and other leading Italian politicians often cite speculation as a cause of market storms that involve a run on the country’s shares or bonds. And the media habitually depicts sell-offs as attacks on Italy.

S&P, which along with other rating agencies has been strongly criticised in Europe for downgrading countries such as Greece, said in a statement it believed the Trani inquiry “has no foundation”. It added: “We shall strenuously defend our work, our reputation and that of our analysts.”

Moody’s said it took “its responsibilities surrounding the dissemination of market-sensitive information very seriously”, and was co-operating with the authorities.

The Trani prosecutors began investigating Moody’s in May last year after a complaint by two consumer associations about a report from the ratings agency which said the Italian banking system was at risk from the crisis in Greece. It sparked a round of selling on the Milan bourse.

It is not clear why the consumer groups took their grievances to out-of-the-way Trani, but Italian prosecutors have wide, discretionary powers to look into alleged offences brought to their attention.

This is not the first time Trani’s prosecutors have hit the headlines. Last year, they investigated Berlusconi on suspicion of having pressured Italy’s broadcasting watchdog to get a programme critical of his government taken off the air.

Standard & Poor’s came under scrutiny in May after it threatened to downgrade Italy’s credit rating because of its huge public debt. Italy is proportionately the second most highly indebted country in the eurozone after Greece.

The inquiry has since been widened to include a report by S&P last month in which it criticised the government’s austerity measures. Those questioned by the Trani prosecutors include the president-designate of the European Central Bank, Mario Draghi; Italy’s finance minister, Giulio Tremonti, and a former prime minister, Romano Prodi.

A separate inquiry is being conducted by prosecutors in Rome into market panics in June and July. Italy’s stock market regulator, Consob, last month summoned Moody’s and S&P for meetings and urged them not to release their statements during market hours.

Elio Lanutti, president of one of the consumer groups that sparked the inquiry, said: “The three ‘sisters’ – Standard & Poor’s, Moody’s and Fitch – are an erratic danger to state sovereignty in the areas of economics and finance”.


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