ft.com/alphaville

The FT’s investigation into Moody’s rating of CPDO has shown that:

• Moodys made an error in its mathematical code used to assign a rating to CPDOs. The error was discovered in early 2007, but it appears that investors in the bonds and clients were not informed.

• Several CPDOs produced by ABN Amro had already been rated, and many more - from a whole range of other banks - were in the pipeline. Moody’s put the rating of these nascent CPDOs on hold.

• Discussions on what to do about the error were led by some of the most senior staff in Moody’s European structured finance business. Although the CPDO rating committee, comprising senior staff and analysts, discussed the coding error, it does not appear to have discussed whether the issue should be - or was - disclosed to clients or investors.

• The committee did discuss “methodological changes” which were implemented simultaneously with the code correction.

• Documents show that three methodological changes were proposed, but only two were adopted. The third was ditched because it “did not help the rating.” Of the two changes which were made, the document states: “the impact of our code issue after those improvements is then reduced.”

• After the changes were made, Moody’s resumed the rating of CPDOs, and continued to award triple A ratings to CPDOs.