Moody's

Moody's. Moody's is a globally integrated risk assessment firm, best known for its credit rating agency, Moody's Investors Service, which evaluates the creditworthiness of debt issuers and their securities. The corporation also operates Moody's Analytics, a provider of financial intelligence and analytical tools to business and financial institutions. Headquartered in New York City, its ratings and research significantly influence capital markets, investment decisions, and economic policy worldwide.

History

The company was founded in 1909 by John Moody with the publication of *Moody's Analyses of Railroad Investments*, which introduced a systematic alphanumeric rating system for railroad bonds. It expanded its coverage to industrial and public utility bonds in the 1910s and survived the Great Depression, though its reputation was challenged during the stock market crash of 1929. Following a period under the ownership of Dun & Bradstreet beginning in 1962, it was spun off as an independent, publicly traded company on the New York Stock Exchange in 2000. Key developments include its expansion into structured finance in the 1970s and 1980s, its pivotal role during the 2007-2008 financial crisis, and its strategic growth of Moody's Analytics through acquisitions like Economy.com and Bureau van Dijk.

Business segments

Moody's operates through two primary, complementary business segments. Moody's Investors Service is the credit rating agency that publishes ratings on a vast range of debt obligations, including sovereign debt, municipal bonds, corporate bonds, and complex structured finance products like mortgage-backed securities. Moody's Analytics provides a suite of software solutions, economic research, and risk management services, including products for credit analysis, regulatory compliance such as IFRS 9 and CECL, and economic forecasting, serving banks, corporations, and government agencies globally.

Credit rating process

The rating process is initiated when an issuer, such as a corporation or government, requests and pays for a rating to facilitate access to the bond market. A team of analysts conducts a rigorous assessment, examining the issuer's financial statements, industry position, competitive landscape, and management strategy, alongside broader macroeconomic factors. The analysis employs proprietary methodologies published by the agency, which are designed to ensure consistency across sectors like corporates, financial institutions, and infrastructure projects. A rating committee, independent of the analytical team, then debates and votes to assign a letter grade rating, such as Aaa or Ba1, which is subsequently published and monitored for ongoing surveillance.

Regulatory oversight and controversies

In the United States, the company is designated as a Nationally Recognized Statistical Rating Organization (NRSRO) by the U.S. Securities and Exchange Commission (SEC), subjecting it to oversight under the Credit Rating Agency Reform Act of 2006 and the Dodd-Frank Wall Street Reform and Consumer Protection Act. It has faced significant scrutiny and criticism, most notably for assigning high investment-grade ratings to subprime mortgage structured products in the lead-up to the 2007-2008 financial crisis, a subject of investigation by the Financial Crisis Inquiry Commission. Other controversies include antitrust investigations by the European Commission, allegations of insider trading, and ongoing debates about the inherent conflict of interest in the "issuer-pays" business model.

Impact on financial markets

Moody's ratings are deeply embedded in the architecture of global finance, as they are used by investors, portfolio managers, and regulators to assess risk and make investment decisions. Many institutional investors and fiduciary guidelines are restricted by charter or regulation to holding only securities above a certain rating threshold, such as investment-grade. A rating downgrade, particularly for a sovereign like the United States or a major corporation like General Motors, can trigger significant market volatility, increase borrowing costs, and affect currency valuations. Its assessments also influence the collateral requirements for derivatives trading under rules set by ISDA agreements and global banking regulations like Basel III.

Category:Financial services companies of the United States Category:Companies listed on the New York Stock Exchange Category:Credit rating agencies