Credit Ratings Agency Get Back to Declining Standards

“NEW YORK — Huxley Sommerville, group managing director at Fitch Ratings, increasingly fears another massive financial crisis. Ask him why and he tells the story of a recent deal his credit rating agency failed to secure.

Last month, a group of Citigroup bankers contacted Fitch’s New York headquarters, hoping to convince its analysts to deliver their seal of approval for a bond issue. In essence, Citi needed Fitch to conclude that the landlord of an iconic Manhattan office tower should be considered as trustworthy as the government of the United States.

Citigroup had recently partnered with Deutsche Bank to lend $783 million to the owner of the Seagram Building, an architectural gem on Park Avenue in midtown Manhattan. Now, its bankers were in the process of turning that huge loan into multiple bonds, hoping to resell the debt to investors in pieces. They would turn one loan into commercial mortgage-backed securities.

But doing the deal required the rating agency’s blessing: Fitch had to assign a slice of those bonds its coveted “AAA” rating, an action that would officially make the debt about as sound as a savings bond from Uncle Sam….”

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