UBS, Europe's biggest bank by assets, and Bear Stearns Cos. were subpoenaed by Massachusetts officials looking into why the companies wrote upbeat reports on sub-prime mortgage lenders as bad loans rose to a four-year high.
The firms were asked to provide documents by March 27, Secretary of the Commonwealth William Galvin, the state's top financial industry regulator, said Tuesday. Galvin is seeking information on research, fees and commissions earned by the two companies related to sub-prime lenders and any documents sent to hedge fund clients invested in such lenders.
Shares of lenders such as New Century Financial Corp. have plunged more than 95% this year because sub-prime loan delinquencies have been rising amid a slump in housing. UBS analyst Omotayo Okusanya lowered his rating on New Century shares to "reduce 2" this month after raising it Feb. 23. Bear Stearns analyst Scott Coren raised his rating to "peer-perform" March 1.
"There were some inconsistencies," Galvin said. "There were upgrades by these two firms that are raising sufficient questions right now."
A slowdown in housing, brought on by Federal Reserve interest rate hikes from 2004 to 2006, pushed sub-prime loan delinquencies to a four-year high in the fourth quarter last year and forced mortgage underwriters to buy back loans sold to investors.