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European Ratings Rules Won’t Alter Industry, Piper Jaffray Says

The new credit-rating rules that European Union lawmakers are debating won’t dent the industry’s profits, according to Peter Appert, an analyst at Piper Jaffray & Co. in San Francisco.

The European Parliament’s economic and monetary affairs committee decided yesterday in Brussels to scale back a proposal to force businesses to rotate which firms they hire to rate their debt. That rule, along with the rest of the region’s plan to tighten regulation of ratings, will have “minimal impact” on profits at Moody’s Investors Service and New York-based Standard & Poor’s, Appert wrote today in a report.

The European Commission, the 27-nation EU’s regulatory arm, proposed the rotation as part of a draft law to toughen regulation of the ratings industry amid concerns that some of the companies’ decisions exacerbated the euro-area debt crisis. Parliament and national governments must begin discussions on a final compromise bill before the legislation can become law.

“We expect the final outcome to be very manageable in terms of modest incremental costs and minimal disruption to the current business model,” Appert said.

Moody’s Corp.’s stock has climbed 7.2 percent this year to $36.12 at 10:20 a.m. in New York, while McGraw-Hill Cos., the owner of S&P, has dropped 3.4 percent to $43.44. Appert said his target for Moody’s is $47 while McGraw-Hill may rise to $54.

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