Photo: The Last Days Of Lehman Brothers
Bill Harrington was an analyst in the structured finance group at Moody’s for 11 years. For much of that time, he rated collateralized debt obligations (CDOs).The financial crisis was not caused by Moody’s alone, but certainly the organisation isn’t blameless.
And Bill Harrington told ProPublica (via Dealbook) that Moody’s has barely changed its culture despite the catastrophic financial implosion of 2008, in which the company and others gave out AAA ratings to financial clients that were clearly not worthy of that rating, or even those that came after it.
“The dominant ethos during the boom, instilled by Brian M. Clarkson, the former president and chief operating officer, was that customer service was Job 1. And the customers were the bankers,” the Moody’s veteran said. (Clarkson admitted as much in his interview with the FDIC).
Though Clarkson is out, “his philosophy is largely still in place,” Harrington says.
Harrington was with Merrill Lynch in the Global Fixed-Income Group for six years before he joined Moody’s in 1999. He earned an MBA from Wharton. At Merrill, he structured and traded derivatives in the global interest-rate, bond and currency markets.
Banker Bullies And The Moody’s Way
Harrington says that up until his last day with Moody’s, “bankers remained hard-charging and aggressive advocates for their deals, sometimes to the point of abusing the analysts.”
Worse, he claims, the upper echelon at Moody’s never stands up for their analysts or gives them the benefit of the doubt when these conflicts arise.
Harrington says that at one particular meeting, an analyst suggested that they be given training in “how to deal with banker abuse.” The executive who was running the workshop “immediately shot down” the suggestion.
Harrington also told ProPublica that this cultural norm within Moody’s is upheld and enforced by the compliance department:
In the spring of 2009, Mr. Harrington was working on a deal and a banker was persistently calling him. He returned the first call, but had other work that day and didn’t return the next two calls right away. Soon after, his boss alerted him to a call he’d received from Michael Kanef, the head of compliance.
Kanef wanted to know why Mr. Harrington hadn’t returned the banker’s call. Mr. Harrington was shocked. Why was the head of compliance getting involved? But he got the apparent message: Analysts are to lean over backward for the bankers.
The fact is, this culture of Wall Street outreach and kowtowing has been and continues to be rife at Moody’s, because Moody’s needs banker’s business to stay afloat. That unavoidable and vicious cycle probably goes some way to explaining why the agency’s former CEO is so unapologetic about the company’s role in the crisis.