G7 report skewers rating firms for flawed methods

By Walden Siew

NEW YORK (Reuters) - Wall Street largely backed a G7 report that skewered rating companies for their "severe underestimation" of risky bonds that helped spark a worldwide credit crisis, but any immediate change or market impact will be limited, investors and analysts said.

The Financial Stability Forum report, released on Friday, devoted large sections to rating agencies and transparency issues, citing conflicts of interest and faulty ratings methods.

The FSF represents regulators and finance ministers from the Group of Seven nations, comprising the United States, Japan, Britain, Canada, France, Germany and Italy.

"Historically I can't remember when the G7 comes up with anything significant that moves markets," said Andrew Brenner, co-head of the structured product group at MF Global in New York. "It's politics and picture-taking and very little else."

Recommendations include a separate rating scale or different symbols for structured debt versus corporate bonds, and other changes to reduce conflicts of interest.

Most Wall Street analysts supported the broad goals of the report but said the paper was short on details. Brenner said consistent ratings made more sense than new rating scales.

"The rating companies need to have similar ratings for all products" for consistency, Brenner said.

The bursting of the U.S. housing bubble began to ripple through Wall Street last summer, roiling global markets.