Lawsuit fears keep Moody's shares in cuffs even as Q4 net income rises
APNEW YORK -- Moody's fourth-quarter net income jumped 66 percent and revenue blew away expectations, but shares slid with many expecting the ratings agency will be the next target of the Justice Department, which filed a suit against a rival for its actions before the housing market collapse.
February 10, 2013, 12:32 am TWN
The Obama administration accused Standard & Poor's on Tuesday of refusing to warn investors that the housing market was collapsing in 2006 because it would be bad for business.
In the days since S&P announced that the lawsuit would be filed Moody's shares have tumbled, and they fell another 9 percent Friday.
For the quarter ended Dec. 31, the New York company earned US$160.1 million, or 70 cents per share, up from US$96.2 million, or 43 cents per share, in the same quarter last year.
Revenue jumped 33 percent to US$754.2 million, easily topping Wall Street expectations for revenue of US$687.1 million in revenue, according to FactSet.
U.S. revenue rose 40 percent to US$400.9 million, while overseas revenue increased 26 percent to US$353.3 million.
Revenue from Moody's Investors Service, its credit rating arm, rose 42 percent to US$519.4 million, as global corporate finance revenue jumped 73 percent to US$244.9 million on higher demand for credit ratings.
Why Moody's was not included in the Justice Department action was debated all week, though the direction of the company's stock suggests that most believe that is only a matter of time. And experts said the lawsuit could serve as a template for future action against Fitch and Moody's, the other two major credit rating agencies.
CEO Raymond McDaniel said that he had no knowledge of any pending action against the company during a conference call with investors Friday.
Yet it now appears that New York Attorney General Eric Schneiderman is examining all three of the nation's biggest credit rating agencies, including Moody's, to ensure compliance with agreements reached with the state in 2008.
According to the lawsuit, S&P gave high marks to the investments because it wanted to earn more business from the banks that issued them. S&P has denied any wrongdoing, and it has vowed to fight the civil charges filed by the Justice Department.
For the full year, Moody's earned US$690 million, or US$3.05 per share, up from US$571.4 million, or US$2.49 per share, in 2011. Revenue rose to US$2.73 billion from US$2.28 billion.
The company said that despite the continued economic uncertainty, it expects market conditions to remain favorable this year and projected a 2013 profit of US$3.45 to US$3.55 per share. Analysts expect US$3.25 per share.
But it projected a slowdown in revenue growth at Moody's Investors Service, predicting a revenue increase in the “high-single-digit percent range,” down from the 20-percent increase it posted in 2012.