Connecticut Reportedly Investigating Berkshire Hathaway for Possible Moody's Conflict - Warren Buffett Watch

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May.01

12:31 PM ET

Thursday, 1 May 2008

Connecticut Reportedly Investigating Berkshire Hathaway for Possible Moody's Conflict

Posted By:Alex Crippen

Topics:Antitrust | Municipal Bonds | Credit | Warren Buffett

Companies:Mcgraw-Hill Co Inc | Moody's Corp | Berkshire Hathaway Inc.

BLUMENTHAL
Jessica Hill / AP
Connecticut Attorney General Richard Blumenthal tells Bloomberg he's looking at possible conflict of interest involving Berkshire Hathaway and Moody's. (2005 file photo)
Connecticut's Attorney General Richard Blumenthal tells Bloomberg he's investigating a possible conflict of interest involving Warren Buffett's Berkshire Hathaway.

Berkshire owns a big stake in the credit rating agency Moody's, which recently gave Berkshire's new bond insurer a triple-A, its highest rating.

Berkshire is Moody's largest shareholder with 48 million shares as of the end of the year, worth almost $2 billion. Current price: [MCO Loading... (%) ]

Blumenthal is quoted as saying he's looking at "the clear and direct conflict of interest for Moody's to rate a company owned by such a significant Moody's shareholder."

Blumenthal says it's part of a previously announced antitrust probe of the ratings companies that's already underway: "We have been aware of this issue, and it has been very actively and immediately involved in our investigation. This financial relationship is part and parcel of the issues involved in our antitrust investigation."

Bloomberg also quotes a spokesman for California Treasurer Bill Lockyer raising the same question about Moody's and Berkshire: "It's only natural that you comport yourself in a way that pleases your owners. The perception, at the very least, is problematic. Are they going to rate municipal bonds fairly, or do it in a way that helps maximize income from Berkshire's bond insurance operation?" Lockyer has been critical of Buffett and the entire credit rating industry. (WBW post: Why California Isn't Buying Warren Buffett's Bond Insurance)

Moody's tells Bloomberg that it has a "strict policy" that allows it to manage any potential conflicts of interest, and maintains that Berkshire "is a passive investor that has never contacted us regarding our ratings."

Before Moody's announced its rating, Standard & Poor's gave its AAA rating to Berkshire Hathaway Assurance Corp. Berkshire does not have a reported ownership stake in S&P's parent company, McGraw Hill [MHP Loading... (%) ].