Moody's Corp. (NYSE:MCO) is feeling the credit crunch. Moody's (and its fellow rating agencies) allegedly kept ratings high over the last couple of years during the real estate boom, and now as it corrects its potential mistake, the firm may be punished with softer earnings in its latest quarter as well as possibly in the near term.
The company is expected to announce a first-quarter earnings profit on Wednesday of 34 cents per share on $393.3 million of revenue. The number seems respectable but is lower than its previous quarter of 37 cents per share on $403.7 million of revenue.
What worries many about Moody's is its continued dip in earnings that may continue into its near future. The reason? Fewer companies are turning to Moody's for a debt rating, for fear of an expected poor rating, according to Investment Dealers' Digest. It makes sense. Why pay for a low rating if you know it'll only penalize you more in higher financing costs and possibly hurt your stock if you're a public company?
Meanwhile, it doesn't help Moody's reputation that politicians are partly blaming it and two peers, Standard & Poor's and Fitch Ratings, for its inflated ratings that contributed to the credit crisis. Politicians have been so dissatisfied with the results of the current system of giving Moody's, S&P and Fitch a lock hold on rating debt that Congress is considering creating a government ratings agency that would eventually cut into the bottom line of all three agencies.
To combat this, Moody's is looking to cushion its bottom line with acquisitions. Moody's expects to add approximately $75 million to $85 million in revenue by 2010 from the September purchase of Fermat International, a provider of risk and performance management software for bank. The company also acquired Enb Consulting Ltd., a U.K.-based provider of training services for the financial markets, in December but has been mum on the impact of this addition. - Gerald Magpily
See Moody's press release
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