By Sarah Rabil and Mark Pittman
Oct. 26 (Bloomberg) -- Standard & Poor's and Fitch received subpoenas from Connecticut's attorney general Richard Blumenthal as investigations into credit ratings companies widen.
McGraw-Hill Cos., parent of S&P, said in a regulatory filing today it received a subpoena on Oct. 16. Fitch spokesman James Jockle confirmed the company was also asked for information.
Connecticut's investigation increases scrutiny of S&P, which faces probes by the U.S. Securities and Exchange Commission and the states of New York and Ohio. Regulators are honing on the ratings companies, including Moody's Investors Service and Fitch Ratings, after criticism from investors and lawmakers, who say they gave excessively high rankings to subprime mortgage securities that later lost more than half their value.
``Ratings definitely do not mean what they used to and, to some investors, they mean almost nothing now,'' said Joseph R. Mason, an associate finance professor at Drexel University in Philadelphia, and a visiting scholar at the Federal Deposit Insurance Corp. and a senior fellow at the University of Pennsylvania's Wharton School of Business.
McGraw-Hill, the New York media company that also owns BusinessWeek magazine and market researcher J.D. Power & Associates, rose 2 cents to $49.27 at 9:39 a.m. in New York Stock Exchange composite trading. Moody's parent, New York-based Moody's Corp., rose 26 cents to $43.59.
Moody's spokesman Anthony Mirenda wouldn't say whether the company was also subpoenaed by Connecticut. ``In light of recent developments in the marketplace we expect to receive requests from several entities,'' Mirenda said.
McGraw-Hill spokesman Steven Weiss wasn't immediately available for comment. Tara York, a spokeswoman for Blumenthal, declined to comment immediately.
``The subpoena appears to relate to an investigation by the Connecticut Attorney General into whether Standard & Poor's, in the conduct of its credit ratings business, violated'' state law, the company said in the filing.
Criticism of ratings companies escalated after the collapse of the subprime mortgages roiled global fixed-income markets since July 31, when two hedge funds managed by Bear Stearns Cos. went bankrupt. S&P, Moody's and Fitch began mass downgrades of the bonds only after some of them had fallen as much as 80 cents on the dollar.
SEC Chairman Christopher Cox last month said the commission is probing whether Wall Street pressured ratings companies to give top rankings for mortgage bonds.
The criticism came the same day as a Moody's shareholder filed suit in New York, accusing the firm of not revealing it gave inflated credit ratings to bonds backed by subprime mortgages.
``If one does it, other states are going to try to see what the ratings agencies are going to do,'' said Edward Atorino, an analyst at Benchmark Co. in New York.
A total of 171 subprime-mortgage bonds issued last year with investment-grade ratings were downgraded within 12 months, according to a report released last month by Credit Suisse Group. That compares with just 11 previously, the Zurich-based firm said. To contact the reporter on this story: Emma Moody at email@example.com MARK PITTMAN at firstname.lastname@example.orgLast Updated: October 26, 2007 11:09 EDT