99 Church Street
Moody's Corporation (NYSE: MCO) is the parent company of Moody's Investors Service, a leading provider of credit ratings, research, and analysis covering debt instruments and securities in the global capital markets, and Moody's KMV, a credit risk management technology firm serving the world's largest financial institutions.
While almost everyone in the world has heard of Moody's Investors Service and its ratings and research reports, fewer know that it is a wholly owned subsidiary of Moody's Corporation. The Moody name has been synonymous with securities for more than a century, adapting to the ever changing needs of Wall Street and financial markets worldwide. A trusted name in an often volatile business, Moody's reaches thousands of financial institutions and has more than 20,000 global subscribers. Moody's KMV, a sibling to Moody's Investors Service, provides credit risk management to large financial institutions.
Starting Small: 1900-13
John Moody was born in 1868. He was considered an intelligent, primarily self-taught man with a strong sense of right and wrong. Moody was also an astute businessman and set out to make his mark in the growing investment community of New York. His first major undertaking was the creation of an information source for investors called Moody's Manual of Industrial and Miscellaneous Securities. Moody established an eponymous business (John Moody & Company) and published the first issue of Moody's Manual in 1900. The Manual was filled with data and statistics about the day's trading companies, from financial institutions and government agencies to mining and manufacturing firms.
Within a few months of its conception, Moody's Manual had amassed a following and sold out its print run. By 1903 both Moody's Manual and Moody Publishing Company, as the firm was now called, had national reputations. Moody's Manual had become indispensable to investors and John Moody decided to publish other financially themed books under Moody Publishing Company. His first title, The Truth About Trusts: A Description and Analysis of the American Trust Movement, was published in 1904. Ironically, this very book would be reprinted by Greenwood Press 64 years after its initial printing.
Financial doom, however, was around the corner; Moody and many of his loyal readers faced ruin after the stock market crash of 1907. Moody was forced to sell his business, including the Manual. Within two years, however, Moody was back with a new approach--to provide wary investors with not just information about companies but to go a step further and evaluate their performance and assets. He decided to tackle the burgeoning rail industry and wrote a book entitled Moody's Analyses of Railroad Investments in 1909.
Moody's in-depth reporting on the railroads included a rating system composed of letters, the very same method used by credit reporting agencies of the day. An updated 4,000-page version of Moody's came out in 1911, even touted by the New York Times, followed by How to Analyze Railroad Reports in 1912. By 1913 Moody extended his expertise from railroads to general financial ratings.
Lessons Learned and Rebirth: 1920s-80s
Like his initial success, Moody's business acumen once again brought him to the forefront of the securities industry. His ratings were sought out by investors and Moody responded with a new company, Moody's Investors Service, incorporated in July 1914. Moody expanded his coverage, rating stocks as well as bonds, and within a decade of his new firm's creation covered the entire U.S. bond market. Moody also wrote several books for Yale University Press, including The Masters of Capital: A Chronicle of Wall Street and The Railroad Builders: A Chronicle of the Welding of the States, both published in 1919 and reprinted several times.
When the stock market crashed in 1929 and ushered in the Great Depression, John Moody did not lose his business like before. He survived and so did his thriving ratings service. Moody continued to write his evaluations and publish his findings despite the collapse of much of the financial community. He also wrote his memoirs, beginning with The Long Road Home: An Autobiography, published by Macmillan in 1933, which was followed by a sequel called Fast By the Road (Macmillan, 1942).
In February 1958 John Moody died at the age of 89. Within four years of his death, in 1962, Moody's was bought by credit reporting and information collection giant Dun & Bradstreet Corporation (D&B). Moody's expanded its rating services in the 1970s and began charging fees to the companies it covered. The time-consuming, meticulously researched reports done by Moody's proved invaluable to both investors and the covered companies; companies soon realized that a good rating from Moody's was like money in the bank. For many corporate clients, Moody's ratings increased investor confidence and in turn helped add stability to the marketplace.
Dominating the Market: 1990s
The last decade of the century was a roller coaster ride for Moody's. In 1994 the company failed to make a profit and in 1995 and 1996 there were rumors of a corporate overhaul. In January 1996 D&B announced its intention to divide into three public companies to better serve its shareholders and market segments. Moody's was to remain part of the "new" Dun & Bradstreet information services company. Soon after news of D&B's upcoming split came the resignation of Moody's president, John Bohn, Jr., in March, followed by rumors of a Department of Justice (DOJ) inquiry concerning possible antitrust violations. The DOJ investigation, which targeted only Moody's ratings service, contacted both its chief rivals--Standard & Poor's Corporation (S&P) and Fitch Investor Services--to provide information.
In the midst of the DOJ probe, Moody's reorganized its domestic operations and stepped up plans for international expansion. In 1998 Moody's bought a 10 percent stake in Korea Investors Service (later increased to more than 50 percent) and began investing in Argentina the following year. In 1999 the DOJ investigation into Moody's alleged antitrust violations was closed, and no charges were filed. D&B, still fighting poor performance and stagnant sales, announced it would spin off Moody's within a year. Moody's sales for 1999 had reached $564.2 million, with net income just shy of $156 million.
A New Era: The 2000s
The new millennium brought independence for Moody's when it was spun off from Dun & Bradstreet at the end of September 2000 and became a publicly traded company. This provided a bit of irony; since Moody's could now be rated by others according to its performance. While this gave some ammunition to those who believed Moody's wielded too much power in the industry, the company finished the year with $602.3 million and then for its first complete year as a stand-alone company (2001) raked in $797 million in revenues and $212 million in net income. Moody's commanded a 37 percent share of the corporate bond rating market according to Investor's Business Daily, while rival S&P's had 45 percent and Fitch the remaining 18 percent. Despite S&P's bigger chunk of the market, Moody's maintained the distinction of being named the top credit rating firm for five consecutive years by Institutional Investor magazine.
Because of its value to investors, Moody's became a powerful entity unto itself. Along with its top rival, S&P, the two dominated the corporate bond rating services field and exercised enormous influence. This power, however, was like a double-edged sword. As Bethany McLean pointed out in a Fortune profile of Moody's and S&P in December 2001, "The weight their opinions carry make their judgments critical--but also complicated. The agencies cannot just be observers but active participants in the course of events. ... If the rating agencies act too rashly, they could be accused of causing a bankruptcy. Yet if they deliberate too long, they'll simply be stating what everyone already knows."
In 2002 Moody's bought the San Francisco-based KMV (renamed Moody's KMV), a loan risk assessment agency, for $212.6 million and followed the acquisition with a 20 percent stake in Moscow's Interfax Rating Agency. Moody's international sales had increased to a third or about $343 million of the firm's $1.02 billion in sales in 2002.
By 2003 Moody's had become the top structured finance rating service controlling 37 percent (amounting to $460.6 million for the year) of the worldwide market, besting even S&P. Domestically, a third of Moody's revenues was from its subscription clients and structured finance accounted for another third. One of Moody's most attractive assets was its most famous investor--Warren Buffett's Berkshire Hathaway--which owned a 15 percent stake in the firm. Buffett's ownership was an endorsement in and of itself and lent the company considerable clout. Would this clout keep the company safe from further competition? In 2003 the SEC (Securities and Exchange Commission) gave Toronto newcomer Dominion Bond Rating Service Ltd. official status as a nationally recognized statistical rating organization (NRSRO). Dominion's formal admittance as a NRSRO, forced S&P, Moody's, and Fitch to reevaluate their status as the top three bond ratings services. While it would take the privately owned Dominion years to overtake either S&P (number one in the market) or Moody's (second), it was conceivable the company could give Fitch a run for its money.
By the end of 2003, Moody's Corporation had offices in 18 countries including Argentina, Australia, Germany, Hong Kong, Singapore, South Africa, Spain, and Taiwan; covered $30 trillion in debt from 100 countries; and brought in revenues of $1.25 billion and net income of $364 million.
Principal Operating Units: Moody's Investors Service; Moody's KMV.
Principal Competitors: Standard & Poor's Corporation; Fitch, Inc.; Dominion Bond Rating Service Ltd.