Moody's Profit Rises 26% as Demand for Corporate Credit Ratings Increases
Moody’s Corp., whose founder John Moody created credit ratings in 1909, said first-quarter profit rose 26 percent as growing corporate and junk-bond issuance helped boost demand for debt rankings.
Net income increased to $113.4 million, or 47 cents a share, from $90.2 million, or 38 cents, a year earlier, New York-based Moody’s said today in a statement distributed by Business Wire. The company was expected to earn 44 cents a share, the average forecast of six analysts surveyed by Bloomberg.
“The improved bond market environment supports our favorable outlook for Moody’s in 2010,” Edward Atorino and James Dobson, analysts at Benchmark Co. in New York, wrote in a March 29 note to clients. Total U.S. bond issuance rose 18 percent this year through February while sales of new high-yield bonds, which are securities rated below BBB- by Standard & Poor’s and Baa3 by Moody’s, climbed 250 percent, the analysts wrote.
Moody’s said revenue rose 17 percent to $476.6 million. Within its ratings business, global structured-finance revenue fell 1 percent to $71.5 million in the first quarter. Global corporate-finance revenue climbed 50 percent to $126.4 million.
Companies, agencies and governments sold $1.12 trillion of syndicated bonds last quarter, the most since the three-month period ended June 2009, according to data compiled by Bloomberg. Issuance totaled $1.36 billion in the first quarter of 2009.
The Financial Crisis Inquiry Commission, which is investigating what caused the U.S. financial meltdown, said in a statement today it subpoenaed Moody’s for failing to comply in a “timely manner” with a request for documents. The firm fell $1.43, or 5.27 percent, to $25.69 in New York Stock Exchange composite trading.
Ratings companies Moody’s, S&P and Fitch Ratings are under scrutiny by Congress and state insurance regulators after they assigned top marks to U.S. subprime-mortgage bonds just before that market collapsed in 2007. Moody’s, led by Chief Executive Officer Raymond McDaniel, 52, have fallen 66 percent from a high in February 2007.
U.S. Senator Jack Reed and other Democrats on the Senate Banking Committee approved legislation last month that includes a liability measure, making it easier to sue credit-rating firms, as part of a broader plan to tighten regulation of Wall Street.
In a conference call today, McDaniel said other methods are possible to improve accountability.
“There are other ways to enhance accountability whether it’s through fines, or sanctions” or even “prohibitions on operating in certain parts of the ratings business” if the product isn’t of sufficient quality, he said. “There are a number of things that can be handled through oversight, enhanced oversight with teeth.”
Moody’s confirmed its forecast from February for 2010 earnings per share of $1.75 to $1.85. Analysts expect adjusted earnings per share of $1.87, according to the Bloomberg survey.
McDaniel said in today’s statement that earnings for the rest of the year are subject to “uncertainty that issuance levels later in the year will continue to overcome weakness in some areas of structured finance.”
The National Association of Insurance Commissions held a hearing in September about its plans to reduce its reliance on the bond-rating firms.