Ratings agency S&P faces legal action over role in crisis

Standard & Poor's could face civil charges over the way it rated mortgage bonds before the financial crisis of 2008, when souring home loans triggered stresses that eventually plunged the global economy in to recession.

The three big ratings agencies – S&P, Moody's and Fitch – have been criticised for failing to recognise the subprime housing bubble by giving top-notch ratings to mortgage securities that turned sour with as the toll of bad debts rose in late 2007 and 2008.

The US Justice Department, along with state prosecutors, is preparing to file civil charges against S&P over its ratings of mortgage bonds, according to The Wall Street Journal, which said the move comes after the breakdown of settlement talks between the firm and government lawyers.

It is unclear what the charges will be, or what allegations will be made. Nor is it clear why prosecutors are focusing on S&P and not Moody's or Fitch.

Yesterday the US Justice Department and S&P did not immediately respond to a request for comment.

If charges are filed, the move would be the first such action by federal prosecutors against a ratings agency in relation to the crash. Two years ago, a US commission examining the causes of the crisis concluded that the "failures of credit rating agencies were essential cogs in the wheel of financial destruction".