Source: NY’s AG probing eight banks

May 14, 2010 at 12:00a.m.

Associated Press

NEW YORK

New York’s attorney general has launched an investigation into eight banks to determine whether they misled ratings agencies about mortgage securities, according to a person familiar with the inquiry.

Attorney General Andrew Cuomo is trying to figure out if banks provided the agencies with false information to get better ratings on the risky securities, said the person, who asked not to be identified because the probe has not been made public.

Cuomo’s office is investigating Goldman Sachs Group Inc., Morgan Stanley, UBS AG, Citigroup Inc., Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch, which is now part of Bank of America Corp.

A spokesman from Bank of America, which is based in Charlotte, N.C., said it is cooperating with the attorney general’s office.

Representatives from Goldman Sachs, Citigroup and Credit Agricole declined to comment. Spokesmen from the other banks were not immediately available to comment.

During the housing boom, Wall Street banks often packaged pools of risky subprime mortgages together. The securities then were typically given top-notch ratings, and investors purchased them, in part, because of their high ratings.

The ratings, issued by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, are used as a guide for investors to assess the risks of an investment.

As the housing market collapsed and more customers fell behind on repaying their mortgages, the securities’ value began to fail.

The securities have been widely blamed for exacerbating the credit crisis and costing investors and the banks billions of dollars in losses. The ratings agencies have come under fire for having given such high ratings to securities that soured.