Moody’s profit soars; forecasts strong 2013 earnings

NEW YORK, Fri Feb 8, 2013 — Credit rating agency Moody’s Corp., which could face a federal lawsuit tied to pre-crisis ratings, said quarterly profit jumped 66 percent and the company forecast strong 2013 earnings.

The company has been benefiting as firms refinance debt to take advantage of rock-bottom interest rates to access cheap funding.

Moody’s said it expects full-year earnings in the range of $3.45 to $3.55 per share and full-year revenue growth rate in the high single digits percent range.

Analysts on average were expecting the company to earn $3.18 per share, excluding items, according to Thomson Reuters I/B/E/S.

The growth rate at the Investor Services unit, which houses the bond rating business, is set to slow. The company forecast revenue growth at the unit in the high-single-digit percent range, compared with the 20 percent rise in 2012.

Net income rose to $160.1 million, or 70 cents per share, in the fourth quarter, from $96.2 million, or 43 cents per share, a year earlier.

Revenue rose 33 percent to $754.2 million.

Moody’s reserves judgment on U.S. rating until after budget

NEW YORK, Wed Nov 7, 2012 – Moody’s Investors Service said on Wednesday it will hold off on its judgment of whether to cut its sovereign credit rating for the United States until after the 2013 budget process is completed.

The re-election of U.S. President Barack Obama removed the uncertainty over who would lead the country but the maintenance of the status quo in a still-divided Congress means the likelihood of a continued tough fight to hammer out a budget.

Moody’s currently has the United States at its highest rating of Aaa, but with a negative outlook.

If policymakers are able to reach consensus and produce a budget that results in a stabilization of the fiscal outlook and “then a downward trend in the ratio of federal debt to GDP (gross domestic product) over the medium term,” Moody’s reiterated it would like affirm the Aaa rating and return the rating outlook to stable.

“In contrast, if negotiations fail to produce policies that lead to debt stabilization and ultimately reduction, then we expect to lower the rating, probably to Aa1,” Moody’s said, outlining a one notch downgrade.

SEC finds failures at credit raters, including Standard & Poor’s, Moody’s, Fitch

WASHINGTON ― Securities and Exchange Commission staff found “apparent failures” at each of the 10 credit rating agencies they examined, including Standard & Poor’s, Moody’s, and Fitch, the agency said on Friday in its first annual report on credit raters.

The SEC sent letters outlining the staff’s concerns to each of the ratings firms and demanded a remediation plan with 30 days, an agency official said in a conference call with reporters.

The SEC staff said concerns include failures to follow ratings methodologies, failures in making timely and accurate disclosures and failures to manage conflicts of interest.

The SEC’s report was required by last year’s Dodd-Frank financial oversight law.

The staff report did not single out by name any credit-rating agency for questionable actions, but it did describe specific problems it found.

Two of the three largest firms, for example, did not have specific policies in place to manage conflicts of interest when rating an offering from an issuer who is also a large shareholder of the firm.

The industry is dominated by Moody’s Corp, McGraw-Hill Cos Inc’s Standard & Poor’s and Fimalac SA’s Fitch Ratings.

One of the large firms, the report said, did not have effective procedures in place to prevent leaks of ratings before they are published, the report said.

One of the three firms also failed to follow its methodology in rating certain asset-backed securities, was slow to discover, disclose and fix the errors, and may have let business interests influence its mistakes, the report said.

The report said the SEC has not determined that any of the findings constituted a “material regulatory deficiency” but said it might do so in the future.

“We expect the credit rating agencies to address the concerns we have raised in a timely and effective way, and we will be monitoring their progress as part of our ongoing annual examinations,” said Norm Champ, deputy director of the SEC’s Office of Compliance Inspections and Examinations.

Congress first empowered the SEC to closely regulate ratings firms in 2006, and the Dodd-Frank law gave the agency even greater powers over the industry.

Credit raters have been widely criticized for fueling the financial crisis by giving top ratings to subprime mortgage securities that collapsed in value as the housing market cooled.

On Monday, McGraw-Hill disclosed that the SEC might charge its S&P unit with breaking securities laws over ratings it gave a package of securitized mortgages in 2007.

SEC Enforcement Director Robert Khuzami told Reuters this week that the agency faces hurdles proving wrongdoing at credit-rating agencies, pointing to the complexity of the cases and the industry’s strong legal defenses. But he added that it would not stop the agency from probing possible misconduct.

Vanished Moody’s analyst told to pay SEC $34.6 million

NEW YORK ― A former Moody’s Investors Service analyst who bolted for India and cannot be found was ordered to pay $34.56 million in a U.S. Securities and Exchange Commission lawsuit over his alleged illegal insider trading.

Deep Shah, who was a lodging analyst, has been a fugitive since being hit with criminal and civil charges in November 2009 in connection with a federal insider-trading probe centered on Galleon Group hedge fund founder Raj Rajaratnam.

U.S. District Judge Jed Rakoff in Manhattan on Tuesday entered a default judgment that requires Shah to give up $8.2 million of improper profits attributed to his tips, pay $1.76 million of interest, and pay a $24.6 million civil fine.

Shah, who is in his late 20s, has been accused of providing tips about two pending takeovers in 2007: Blackstone Group LP’s purchase of Hilton Hotels Corp and Hellman & Friedman’s purchase of software company Kronos Inc.

According to an affidavit attached to a March court filing, a bailiff in India said he left a copy of the SEC complaint at a residence for Shah in Mumbai a year earlier, and Shah “was not found on my inquiries with his servant.”

Default judgments against parties like Shah who fail to defend lawsuits are often impossible to enforce.

“We try to see if there are any assets we can execute on in the United States,” said Valerie Szczepanik, an SEC lawyer. “If not, we have to explore what our options are.” She said the SEC believes Shah is still in India.

In its 2010 fiscal year, the SEC recovered $1.72 billion of ill-gotten gains, interest and fines from defendants, up from $1.68 billion a year earlier.

Shah is the last of 26 defendants criminally charged in the original portion of the government’s hedge fund insider-trading probe, which was unveiled in October 2009.

Four including Rajaratnam were convicted, and 21 pleaded guilty. The SEC said it entered settlements to collect roughly $13.1 million from other defendants in these cases, not including Rajaratnam and others who were convicted.

Moody’s Investors Service is the primary unit of Moody’s Corp.

Moody’s suggests United States eliminate debt ceiling

NEW YORK ― Ratings agency Moody’s Monday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders.

The United States is one of the few countries where Congress sets a ceiling on government debt, which creates “periodic uncertainty” over the government’s ability to meet its obligations, Moody’s said in a report.

“We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty,” Moody’s analyst Steven Hess wrote in the report.

The agency last week warned it would cut the United States’ AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement.

Moody’s said it had always considered the risk of a U.S. debt default very low because Congress has regularly raised the debt ceiling during many decades, usually without controversy.

However, the current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk,” Hess said.

Stepping further into the heated political debate about U.S. debt problems, Moody’s suggested the government could look at other ways to limit debt.

It cited Chile, widely praised as Latin America’s most fiscally-sound country, as an example.

“Elsewhere, the level of deficits is constrained by a ‘fiscal rule,’ which means the rise in debt is constrained though not technically limited,” Moody’s said, adding that such rule has been effective in Chile.

It also cited the example of the Maastricht criteria in Europe, which determines that the ratio of government debt to GDP should not exceed 60 percent. It noted, however, that such a rule is often breached by the governments.

In the United States, Moody’s said the debt limit had not effectively curbed the rise in government debt because lawmakers regularly raise it and because that limit is not related to the level of expenditures approved by Congress.