Moody's Corporation

Last updated
Moody's Corporation
Company type Public
IndustryBusiness and financial services
PredecessorJohn Moody & Company
Founded1909;115 years ago (1909)
Founder John Moody
Headquarters
7 World Trade Center
New York City
,
United States
Area served
Worldwide
Key people
RevenueIncrease2.svg US$5.92 billion (2023)
Increase2.svgUS$2.14 billion (2023)
Increase2.svgUS$1.61 billion (2023)
Total assets Increase2.svgUS$14.6 billion (2023)
Total equity Increase2.svgUS$3.32 billion (2023)
Owner Berkshire Hathaway (13.5%)
Number of employees
15,151 (2023)
Subsidiaries
Website moodys.com
Footnotes /references
[1] [2]

Moody's Corporation, often referred to as Moody's, is an American business and financial services company. It is the holding company for Moody's Ratings (previously known as Moody's Investors Service), an American credit rating agency, and Moody's (previously known as Moody's Analytics), an American provider of financial analysis software and services.

Contents

Moody's was founded by John Moody in 1909 to produce manuals of statistics related to stocks and bonds and bond ratings. Moody's was acquired by Dun & Bradstreet in 1962. In 2000, Dun & Bradstreet spun off Moody's Corporation as a separate company that was listed on the NYSE under MCO. In 2007, Moody's Corporation was split into two operating divisions, Moody's Investors Service, the rating agency, and Moody's Analytics, with all of its other products. [3] It was included in the Fortune 500 list for the first time in 2021. [4]

History of Moody's

Moody's Corporation traces its history back to two publishing companies established by John Moody, the inventor of modern bond credit ratings. It was first published in 1900 by John Moody, nine years before he founded Moody's Corporation. Initially called Moody's Manual of Industrial and Miscellaneous Securities, it was later superseded by Moody's Manual of Railroads and Corporation Securities, then by Moody's Analyses of Investments. [5] [6]

In 1900, Moody published his first market assessment, called Moody's Manual of Industrial and Miscellaneous Securities, and established John Moody & Company. [7] The publication provided detailed statistics relating to stocks and bonds of financial institutions, government agencies, manufacturing, mining, utilities, and food companies. It experienced early success, selling out its first print run in its first two months.

By 1903, Moody's Manual was a nationally recognized publication. [8] The 1907 financial crisis fueled several changes in the markets, including the creation of the Federal Reserve System. [7] Meanwhile, Moody was forced to sell his business, due to a shortage of capital. [8] Moody returned in 1909 with a new publication focused solely on railroad bonds, Analysis of Railroad Investments, [9] [10] and a new company, Moody's Analyses Publishing Company. [7]

In 1962, Moody's Investors Service was bought by Dun & Bradstreet, a firm engaged in the related field of credit reporting, although they continued to operate largely as independent companies. [11] By the late 1990s, Moody's superior performance compared to its parent company brought investor pressure to separate the businesses. [12] In 1998, Dun & Bradstreet sold the Moody's publishing business to Financial Communications (later renamed Mergent). [13] In December 1999, Dun & Bradstreet announced it would spin off Moody's Investors Service into a separate publicly traded company. [14] The spin-off was completed on September 30, 2000. [15]

Moody's Ratings

Moody's Ratings, previously known as Moody's Investors Service, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Ratings rates debt securities in several market segments related to public and commercial securities in the bond market. These include government, municipal and corporate bonds; managed investments such as money market funds, fixed-income funds and hedge funds; financial institutions including banks and non-bank finance companies; and asset classes in structured finance. [16]

Moody's Ratings closest competitors are Standard & Poor's (S&P) and Fitch Group. Together, they are sometimes referred to as the Big Three credit rating agencies. Moody's Ratings and its close competitors play a key role in global capital markets as a supplementary credit analysis provider for banks and other financial institutions in assessing the credit risk of particular securities. [17]

According to Moody's, the purpose of its ratings is to "provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged". To each of its ratings from Aaa through Caa, Moody's appends numerical modifiers 1, 2 and 3; the lower the number, the higher-end the rating. Aaa, Ca and C are not modified this way. [18] [19]

Moody's

Moody's, previously known as Moody's Analytics, is a subsidiary of Moody's Corporation established in 2007 to focus on non-rating activities. [20] It performs economic research related to credit analysis, performance management, financial modeling, structured analysis and financial risk management. Moody's also offers software and consulting services, including proprietary economic models and software tools, as well as professional training for the financial services sector, particularly risk management accreditation.

Moody's Analytics started in 1995 as a business unit providing quantitative analysis services, including credit risk assessment software and services, called Moody's Risk Management Service (MRMS), [7] [15] and grew through partnerships and acquisitions in the late 1990s and 2000s, expanding its client base and capabilities. [15] Acquisitions included KMV, Economy.com, Wall Street Analytics, Fermat International, Enb Consulting Ltd., The Institute of Risk Standards and Qualifications (iRSQ), CSI Global Education Inc., [21] and Bureau van Dijk [22] [ circular reference ].

The Moody's Foundation

In 2002, Moody's Corporation created a corporate philanthropy program, The Moody's Foundation, focused on educational initiatives in mathematics, economics and finance. The organization offers grants to 501(c)(3) non-profits and equivalent international organizations, accredited schools and some governmental organizations. [23]

Since 2006, its main program is the annual Moody's Mega Math Challenge (M3 Challenge), a student academic challenge co-sponsored with the Society for Industrial and Applied Mathematics (SIAM), [24] in which several hundred teams of high school students use quantitative analysis and modeling to solve problems related to real-life financial topics such as Social Security and the Economic Stimulus Act of 2008. [25] [26] Since 2010. [27]

Moody's Research Labs

Moody's Research Labs, Inc. was a business incubator focused on research and development specializing in financial risk modeling and analysis, focused on developing such products for use by other divisions of Moody's Corporation. [28] Its president was Roger Stein. [29] In March 2011 Moody's Analytics announced the release of a software program developed by Moody's Research Labs, the Mortgage Portfolio Analyzer, to assist portfolio managers in managing credit risk. [30] Moody's Research Labs was dissolved in February 2012.

Lawsuit settlements

October 2011: Moody’s reached a settlement resolving claims by the state of Connecticut that the credit rating company unfairly gave lower ratings to public bonds. [31]

July 2012: Moody’s said it reached a settlement with stockholders in lawsuits filed over structured finance ratings. [32]

April 2013: Moody's reached a settlement avoiding what would have been their first jury trial over crisis-era ratings. The fourteen plaintiffs, were led by Abu Dhabi Commercial Bank and King County, Washington. They claimed lawsuits filed in 2008 and 2009 that Moody's misled them by allegedly inflating ratings on two so-called structured investment vehicles they purchased. [33]

January 2017: Moody's Corporation, Moody's Analytics, and Moody's Investors Service reached an $863 million settlement with the U.S. Department of Justice and the attorneys general of 21 states and the District of Columbia "Arising From Conduct in the Lead up to the Financial Crisis." "The settlement resolves allegations arising from Moody’s role in providing credit ratings for Residential Mortgage-Backed Securities (RMBS) and Collateralized Debt Obligations (CDO), contributing to the worst financial crisis since the Great Depression." Then California Attorney General Kamala Harris and then Missouri Attorney General Josh Hawley were among the 21 state signatories. [34]

March 2021: Moody's reached a settlement with the European Union regarding conflicts of interest. Moody's was fined €3.7 million ($4.35 million). [35]

Acquisitions

In 2019, Moody's Corporation purchased the majority share in the California-based climate risk data firm, Four Twenty Seven (427), that "measures the physical risks" of "climate change". [36] This acquisition is the "latest indication that global warming can threaten the creditworthiness of governments and companies" globally, according to a July 25, 2019 article in The New York Times. [36] In 2021, Moody's acquired Risk Management Solutions (RMS) from Daily Mail and General Trust for $2 billion. RMS generates risk models for the insurance and reinsurance industries. [37]

Related Research Articles

In finance, a high-yield bond is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit events but offer higher yields than investment-grade bonds in order to compensate for the increased risk.

<span class="mw-page-title-main">Debt</span> Obligation to pay borrowed money

Debt is an obligation that requires one party, the debtor, to pay money borrowed or otherwise withheld from another party, the creditor. Debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest. Loans, bonds, notes, and mortgages are all types of debt. In financial accounting, debt is a type of financial transaction, as distinct from equity.

<span class="mw-page-title-main">S&P Global Ratings</span> American credit rating agency

S&P Global Ratings is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is considered the largest of the Big Three credit-rating agencies, which also include Moody's Investors Service and Fitch Ratings. Its head office is located on 55 Water Street in Lower Manhattan, New York City.

<span class="mw-page-title-main">Credit rating agency</span> Company that assigns credit ratings

A credit rating agency is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the underlying debt, but not of individual consumers.

In finance, a credit derivative refers to any one of "various instruments and techniques designed to separate and then transfer the credit risk" or the risk of an event of default of a corporate or sovereign borrower, transferring it to an entity other than the lender or debtholder.

A financial analyst is a professional, undertaking financial analysis for external or internal clients as a core feature of the job. The role may specifically be titled securities analyst, research analyst, equity analyst, investment analyst, or ratings analyst. The job title is a broad one: in banking, and industry more generally, various other analyst-roles cover financial management and (credit) risk management, as opposed to focusing on investments and valuation; these are also discussed in this article.

<span class="mw-page-title-main">John Moody (financial analyst)</span> American financial businessman

John Moody was an American financial analyst, businessman and investor. He pioneered the rating of bonds and founded Moody's Investors Service. Moody's Manuals are still issued, carrying on the tradition begun by Moody's Manual of Railroads and Corporation Securities and continued by the annual Moody's Analyses of Investments.

A credit rating is an evaluation of the credit risk of a prospective debtor, predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting. The credit rating represents an evaluation from a credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other non-public information obtained by the credit rating agency's analysts.

Fitch Ratings Inc. is an American credit rating agency and is one of the "Big Three credit rating agencies", the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975.

The Dun & Bradstreet Corporation is an American company that provides commercial data, analytics, and insights for businesses. Headquartered in Jacksonville, Florida, the company offers a wide range of products and services for risk and financial analysis, operations and supply, and sales and marketing professionals, as well as research and insights on global business issues. It serves customers in government and industries such as communications, technology, strategic financial services, and retail, telecommunications, and manufacturing markets. Often referred to as D&B, the company's database contains over 500 million business records worldwide.

A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, mergers & acquisitions, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of at least one year. Corporate debt instruments with maturity shorter than one year are referred to as commercial paper.

A collateralized debt obligation (CDO) is a type of structured asset-backed security (ABS). Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing mortgage-backed securities (MBS). Like other private label securities backed by assets, a CDO can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns. Distinctively, CDO credit risk is typically assessed based on a probability of default (PD) derived from ratings on those bonds or assets.

<span class="mw-page-title-main">Ambac</span> American financial services company

The Ambac Financial Group, Inc., generally known as Ambac, is an American holding company. Its subsidiaries provide financial guarantee products such as bond insurance to clients in both the public and private sectors globally. Ambac Assurance is a guarantor of public finance and structured finance obligations. Its common stock and common stock purchase warrants are listed on the NYSE under the symbols AMBC and AMBCW respectively. Ambac is regulated by the insurance commission of Wisconsin. It has its headquarters in Lower Manhattan, New York City.

Moody's Ratings, previously known as Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Ratings provides international financial research on bonds issued by commercial and government entities. Moody's, along with Standard & Poor's and Fitch Group, is considered one of the Big Three credit rating agencies. It is also included in the Fortune 500 list of 2021.

<span class="mw-page-title-main">MBIA</span> American financial services company

MBIA Inc. is an American financial services company. It was founded in 1973 as the Municipal Bond Insurance Association. It is headquartered in Purchase, New York, and as of January 1, 2015 had approximately 180 employees. MBIA is the largest bond insurer.

In investment, the bond credit rating represents the credit worthiness of corporate or government bonds. It is not the same as an individual's credit score. The ratings are published by credit rating agencies and used by investment professionals to assess the likelihood the debt will be repaid.

Bond insurance, also known as "financial guaranty insurance", is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security. It is a form of "credit enhancement" that generally results in the rating of the insured security being the higher of (i) the claims-paying rating of the insurer or (ii) the rating the bond would have without insurance.

Credit rating agencies (CRAs)—firms which rate debt instruments/securities according to the debtor's ability to pay lenders back—played a significant role at various stages in the American subprime mortgage crisis of 2007–2008 that led to the great recession of 2008–2009. The new, complex securities of "structured finance" used to finance subprime mortgages could not have been sold without ratings by the "Big Three" rating agencies—Moody's Investors Service, Standard & Poor's, and Fitch Ratings. A large section of the debt securities market—many money markets and pension funds—were restricted in their bylaws to holding only the safest securities—i.e. securities the rating agencies designated "triple-A". The pools of debt the agencies gave their highest ratings to included over three trillion dollars of loans to homebuyers with bad credit and undocumented incomes through 2007. Hundreds of billions of dollars' worth of these triple-A securities were downgraded to "junk" status by 2010, and the writedowns and losses came to over half a trillion dollars. This led "to the collapse or disappearance" in 2008–09 of three major investment banks, and the federal government's buying of $700 billion of bad debt from distressed financial institutions.

<span class="mw-page-title-main">Moody's Analytics</span> Analytics and financial services company

Moody's, previously known as Moody's Analytics, is a subsidiary of Moody's Corporation established in 2007 to focus on non-rating activities, separate from Moody's Investors Service. It provides economic research regarding risk, performance and financial modeling, as well as consulting, training and software services. Moody's is composed of divisions such as Moody's KMV, Moody's Economy.com, Moody's Wall Street Analytics, the Institute of Risk Standards and Qualifications, and Canadian Securities Institute Global Education Inc.

The corporate debt bubble is the large increase in corporate bonds, excluding that of financial institutions, following the financial crisis of 2007–08. Global corporate debt rose from 84% of gross world product in 2009 to 92% in 2019, or about $72 trillion. In the world's eight largest economies—the United States, China, Japan, the United Kingdom, France, Spain, Italy, and Germany—total corporate debt was about $51 trillion in 2019, compared to $34 trillion in 2009. Excluding debt held by financial institutions—which trade debt as mortgages, student loans, and other instruments—the debt owed by non-financial companies in early March 2020 was $13 trillion worldwide, of which about $9.6 trillion was in the U.S.

References

  1. ↑ "Moody's Corporation 2023 Annual Report (Form 10-K)". U.S. Securities and Exchange Commission. 14 February 2024.
  2. ↑ "Moody's Corporation 2023 Proxy Statement (Form DEF 14A)". U.S. Securities and Exchange Commission. 8 March 2023.
  3. ↑ "Moody's Corporation Announces New Business Unit Structure August 7, 2007". www.allbusiness.com.
  4. ↑ "Fortune 500 – Moody's". Fortune . Archived from the original on 10 June 2017. Retrieved 2 June 2021.
  5. ↑ Evans, Peter (2010-05-13). "Debt rating alphabet soup can spell disaster". CBC. Retrieved 2010-06-13.
  6. ↑ Frye, Andrew; Leising, Matthew (2009-12-23). "Buffett Sells Moody's Stock for Sixth Time Since July (Update2)". Bloomberg. Archived from the original on December 27, 2009. Retrieved 2010-06-13.
  7. 1 2 3 4 Sinclair, Timothy J. (2005). The New Masters of Capital: American Bond Rating Agencies and the Politics of Creditworthiness. Ithaca, New York: Cornell University Press. ISBN   978-0-8014-7491-0 . Retrieved 30 August 2011.
  8. 1 2 "Moody's History: A Century of Market Leadership". moody's.com. Retrieved 17 August 2011.
  9. ↑ White, Lawrence J. (Spring 2010). "The Credit Rating Agencies". Journal of Economic Perspectives. 24 (2): 211–226. CiteSeerX   10.1.1.612.7054 . doi:10.1257/jep.24.2.211.
  10. ↑ Yasuyuki, Fuchita; Robert E. Litan (2006). Financial Gatekeepers: Can They Protect Investors?. Washington, D.C.: Brookings Institution Press. ISBN   978-0-8157-2981-5 . Retrieved 30 August 2011.
  11. ↑ Richard Sylla (1–2 March 2000). A Historical Primer on the Business of Credit Ratings (PDF). The Role of Credit Reporting Systems in the International Economy. Washington, D.C.: The World Bank. Archived from the original (PDF) on 28 February 2017. Retrieved 30 August 2011.
  12. ↑ Lynn Sherman (16 December 1999). "Independent Moody's Could Be A More Vigorous Competitor". The Bond Buyer.
  13. ↑ Reporter, a Wall Street Journal Staff (1998-07-16). "Publishing Start-Up Agrees to Buy Moody's Information Publishing Unit". Wall Street Journal. ISSN   0099-9660 . Retrieved 2021-08-03.
  14. ↑ Kenneth N. Gilpin (16 December 1999). "Dun & Bradstreet Will Spin Off Moody's". The New York Times. Retrieved 30 August 2011.
  15. 1 2 3 Louise Bowman (November 2000). "Moody's blues". Airfinance Journal. Retrieved 30 August 2011.
  16. ↑ "Market Segment". moodys.com. Moody's Investors Service. 2011. Retrieved 30 August 2011.
  17. ↑ "Principles for Reducing Reliance on CRA Ratings" (PDF). financialstabilityboard.org. Financial Stability Board. 27 October 2010. Retrieved 30 August 2011.
  18. ↑ "Ratings Definitions". moodys.com. Moody's Investors Service. 2011. Retrieved 30 August 2011.
  19. ↑ "Report on the Activities of Credit Rating Agencies" (PDF). The Technical Committee of the International Organization of Securities Commissions. September 2003. Retrieved 1 December 2011.
  20. ↑ Timothy W. Martin & Michael Calia (April 25, 2014). "Moody's Profit Rises 16% on Analytics Strength". The Wall Street Journal.
  21. ↑ "Moody's Analytics History". moodysanalytics.com. Moody's Analytics. Retrieved 30 August 2011.
  22. ↑ Bureau van Dijk
  23. ↑ "Frequently Asked Questions". moodys.com. The Moody's Foundation. 2010. Retrieved 30 August 2011.[ permanent dead link ]
  24. ↑ Jane Gordon (23 April 2006). "That Was Easy: Social Security Problem Solved". The New York Times. Retrieved 30 August 2011.
  25. ↑ "Teens Ask: Will the Stimulus Package Work?" (Press release). Business Wire. 8 April 2009. Archived from the original on 19 October 2013. Retrieved 30 August 2011.
  26. ↑ Kristin Jesson Bucci (6 May 2009). "West Windsor-Plainsboro North team in top five in Moody's Math Challenge". The Trenton Times. Retrieved 30 August 2011.
  27. ↑ Alice Korngold (1 November 2009). "Moody's Mega Math Challenge: Wall Street's Strategic Philanthropy". Fast Company. Retrieved 30 August 2011.
  28. ↑ "Company Info". moodysresearchlabs.com. Moody's Research Labs. 2011. Retrieved 30 August 2011.[ permanent dead link ]
  29. ↑ "Leadership Team". moodysresearchlabs.com. Moody's Research Labs. 2011. Retrieved 30 August 2011.[ permanent dead link ]
  30. ↑ "Moody's Analytics Launches Mortgage Portfolio Analyzer (MPA)" (Press release). Business Wire. 8 March 2011. Archived from the original on 19 September 2018. Retrieved 30 August 2011.
  31. ↑ "Moody's, S&P, Fitch Settle Connecticut Lawsuit Over Public Bond Ratings". Bloomberg News. 14 October 2011. Retrieved 28 September 2012.
  32. ↑ "Moody's Settles With Shareholders in Structured-Finance Suit". Bloomberg News. 24 July 2012. Retrieved 28 September 2012.
  33. ↑ "S&P, Moody's Settle Ratings Lawsuit". The Wall Street Journal . 28 April 2013. Retrieved 23 June 2013.
  34. ↑ "Justice Department and State Partners Secure Nearly $864 Million Settlement with Moody's Arising from Conduct in the Lead up to the Financial Crisis". 13 January 2017.
  35. ↑ "EU fines Moody's for failing to disclose conflicts of interests". Reuters . 30 March 2021. Retrieved 26 July 2021.
  36. 1 2 Flavelle, Christopher (July 25, 2019). "Moody's Buys Climate Data Firm, Signaling New Scrutiny of Climate Risks". The New York Times. ISSN   0362-4331 . Retrieved July 25, 2019.
  37. ↑ Wallace, Mia. "Revealed – Moody's acquires RMS". www.insurancebusinessmag.com. Insurance Business America. Retrieved 7 August 2021.
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