Profits at Moody’s Down, Outlook for ’08 Weak

The world's second-largest credit rating company, Moody's Corp., reported a 54 percent drop in profit and stated the first half of 2008 will be "weak'' after a collapse in new bond sales reduced demand for rankings. 
 
Fourth-quarter net income declined to $127.3 million, or 49 cents a share, from $278.6 million, or 97 cents, a year earlier, New York-based Moody's reported that fourth-quarter net income declined to $127.3 million, or 49 cents a share, from $278.6 million, or 97 cents, a year earlier. Revenue decreased 14 percent to $504.9 million. 
 
Sales of structured finance debt, once the largest and fastest-growing source of credit-rating revenue, slowed as investor losses on securities backed by U.S. sub-prime mortgages crippled demand. The slump created "unprecedented challenges'' that will continue in 2008, Chief Executive Officer Raymond McDaniel said in the statement. 
 
"The severity and protracted nature of current credit market dislocations confirms that the challenges of 2007 will persist well into 2008,'' McDaniel said. 
 
Analysts were expecting profit of 47 cents a share excluding some items, the average estimate from a Bloomberg survey. 
 
Moody's lost about 46 percent of its market value since July 1 as the slump in credit markets sapped new sales of mortgage securities and forced dozens of companies to abandon or rework other debt sales. Moody's fell 45 cents, or 1.3 percent, to $33.51 yesterday in New York Stock Exchange composite trading. 
 
Moody's, which gets about 80 percent of revenue from credit ratings, is broadening its reach by acquiring or creating non- ratings businesses, including quantitative credit-analysis, structured-finance software and the securities pricing services. 
 
The company last month bought debt-pricing service BQuotes for an undisclosed amount to expand its product lines beyond ratings. BQuotes provides closing prices and data on credit- default swaps, corporate debt, convertible bonds, asset-backed securities and options. 
 
Moody's also reorganized into two divisions during the third quarter, separating its credit-ratings unit from sales, marketing and analytics to emphasize the independence of its debt opinions and help fend off criticism from lawmakers and debt investors.