Fitch is targeted by Italian magistrate

Italian prosecutors have compiled a controversial case against Fitch Ratings for allegedly issuing “false and unfounded judgements” against Italy, the latest move in an escalating judicial campaign against “Anglo-Saxon” credit agencies.

Fitch is targeted by Italian magistrate
It is unclear exactly what allegations have been made against Fitch. Credit: Photo: AFP

Michele Ruggiero, a prosecuting magistrate in Trani, completed a preliminary inquiry against Fitch last week for alleged “market manipulation”, according to reports in the Italian press. Il Sole said prosecutors were pushing for a criminal case against Fitch’s managing director David Riley and Alessandro Settepani, the group’s covered bond chief for southern Europe.

Fitch declined to comment. The Anglo-American agency is owned by the French group Fimalac, making it the most “European” of the Big Three rating powers. Mr Ruggiero has already filed similar charges against officials from Standard & Poor’s, including Moritz Kraemer, the head of sovereign ratings in Europe.

The case file accused S&P of “destabilising Italy’s image on financial markets” by cutting the country’s rating from A to BBB+ in January. It described S&P’s analysts as “inexpert and incompetent”, claiming they published downgrades in a “tempestuous fashion” timed to inflict maximum damage on the Italian economy.

S&P has vowed to fight the charges. “The claims being made are baseless and entirely without merit. We will vigorously defend our actions, our reputation and that of our analysts,” it said.

It is unclear exactly what allegations have been made against Fitch. The agency downgraded Italy in January from A+ to A- on grounds that the EU authorities had failed to put in place a “fully-credible financial 'firewall’ against contagion”.

It said rising funding costs had imperilled debt dynamics. The move came shortly after the International Monetary Fund warned that deepening recession would push the debt-to-GDP ratio significantly above 120pc of GDP.

While Fitch praised recent reforms, it said Italy was vulnerable to forces outside its control. These warnings have since been borne out by events. Italy’s premier Mario Monti said his country’s fate hangs on events in Spain.

Milano Finanza reported that the US Department of Justice has asked for the case file of evidence against Fitch. This would mark a sharp escalation in America’s clamp-down on the rating agencies.

Eric Holder, the US Attorney-General, has reportedly requested access to an 8,000-page dossier of documents. The Department of Justice declined to comment. Fitch said it was baffled by the claim. “We are not aware of the reported request from the US Department of Justice. We are confident we will be found to have fully complied with the law,” a spokesman said.

The US Securities and Exchange Commission set up an Office of Credit Ratings in 2010 to police the agencies after the sub-prime fiasco, but the focus has been on civil compliance. The Department of Justice brushed off overtures last year from Mr Ruggiero for help with criminal probes, on the grounds that rating verdicts are essentially opinion and therefore protected free speech.

The EU has stepped up its regulation, giving the European Securities and Markets Authority powers to police the industry. Tough laws in the pipeline would compel rating agencies to establish their innocence in disputed cases, reversing the burden of proof.

The Italian cases stem from complaints by two consumer groups, Adusef and Federconsumatori, which accuse rating agencies of causing €120bn (£95bn) of damage to Italy. The lobbies chose the southern tribunal of Trani in Puglia rather than the financial centre of Milan, as they may do under Italian law, because Mr Ruggiero is known for pursuing high-profile targets, including ex-premier Silvio Berlusconi.

His crusade against global finance has made him a rising star in Italy, with probes stretching ever further from his offices. He opened a fresh case against Libor abuses by banks last month.

Mr Ruggiero has taken testimony on the rating agencies from Mario Draghi, the European Central Bank’s chief, among other luminaries.

Critics say his role in a Milan case smacks of “venue shopping”. Ruth Lea from Arbuthnot said the attempt to criminalise opinion amounts to financial repression and makes it a less safe place to do business: “This sort of thing will make it ever more likely that investors will pull money out of the country. Rating agencies are often behind the curve but at least they try to give a judgement on the country. If they can’t rely on that, the default setting is to think the worst.”