It hasn't been the best of times for ratings agencies like Moody's
On Thursday, New York-based Moody's reported a 54% decline in net income to $127 million, or $0.49 per share, compared to $278 million, or $0.97 a share, in the fourth quarter of 2006.
Moody's has lost nearly 50% of its value since last summer. In addition to anemic demand for new bond ratings, the company's dealing with allegations that it and other ratings agencies contributed to the now-infamous subprime fallout. Investors and regulators have wondered whether agencies like Moody's awarded unjustified prime ratings to CDOs destined to plunge in value as real estate prices softened.
In a bid last year to regain any lost reputation, Moody's separated its ratings unit from its sales and marketing division, attempting to highlight the independence of each area. With the fate of bond insurers Ambac
Bond ratings currently account for 80% of revenue, but Moody's is trying to branch out into other realms of the bond world. It purchased BQuotes in January; the firm provides pricing and data information for "over the counter" products, which are typically less transparent than heavier-traded investments.
Since Moody's never issued or held the debt it rated, it won't be pinched nearly as badly as others in the market. Nonetheless, 2008 will pose its fair share of challenges for the company. As everyone from regulators to investors seeks a culprit for the subprime mess, the spotlight may turn toward the ratings agencies on which investors relied.
As Berkshire Hathaway
For related Foolishness:
McGraw-Hill, Moody's, and Berkshire Hathaway are Motley Fool Inside Value picks. Moody's and Berkshire are also Stock Advisor selections. Discover more market-beating stock picks with a free 30-day trial to either newsletter.
Fool contributor Morgan Housel and The Motley Fool both own shares in Berkshire Hathaway. Morgan holds no financial position in any other companies mentioned above, and welcomes your questions, comments, or complaints. The Fool's disclosure policy is all about investors writing for investors.