Shahien Nasiripour

Moody?s Investors Service ?did not have any understanding? that MF Global, the failed futures broker, had placed a $6.3bn proprietary bet on the debt of troubled European sovereigns until about a week before the brokerage filed for bankruptcy, despite MF Global?s disclosure of the gamble some five months earlier in May.

The revelation, made in a letter by the agency to Congress, comes as US lawmakers plan this week to grill executives at Moody?s and rival Standard & Poor?s on what they knew and when ahead of the broker?s collapse on October 31.

The bankrupt brokerage is in lawmakers? crosshairs due to some $1.2bn in missing customer funds. Three months after MF Global?s failure, investigators have yet to determine the whereabouts of the missing cash.

S&P participated in a conference call on August 31 with MF Global?s senior executives at which the agency was told that the brokerage?s regulators required it to boost the amount of capital held against those bonds, a disclosure MF Global made the next day to investors.

On September 29, S&P participated in a second call with MF Global on the company?s drawing down of a revolving credit facility.

S&P did not alter its opinion of MF Global?s creditworthiness until October 26, less than a week before the brokerage failed on October 31.

Moody?s waited until October 24 to downgrade the company?s credit, more than seven weeks after MF Global disclosed that regulators required it to hold more capital against its European bet.

Members of Congress plan to ask Moody?s and S&P executives why the rating services appeared to have been so reliant on MF Global to provide them with information, rather than conducting their own due diligence, people familiar with the matter said.

They also want to know why they were so late in downgrading the brokerage?s credit, despite warning signs, such as MF Global?s gamble on European sovereign debt and regulators? insistence that the firm hold more capital relative to those positions. In a letter to a House investigations subcommittee, led by Randy Neugebauer, a Texas Republican, Moody?s said it thought MF Global?s bet was ?client-driven? and that the company was protected by hedges.

? The Financial Times Limited 2012