REUTERS: Moody's profit helped as financial markets recover

Thu Jun 4, 2009 10:19am EDT

* Moody's sees 2009 profit toward upper end of view

* Companies issuing more debt

* Economist says recession could end this year

* Shares fall

By Jonathan Stempel

NEW YORK, June 4 (Reuters) - Moody's Corp (MCO.N) said 2009 profit may be toward the higher end of what it had forecast, as an easing of the recession and credit markets help boost fees for corporate bond ratings from Moody's Investors Service.

The company had forecast full-year profit of $1.40 to $1.50 per share. Chief Executive Raymond McDaniel said "we are toward the upper end" of that guidance as companies, especially with investment-grade ratings, race to raise money cheaply.

"There is some investor appetite for risk that is returning," McDaniel said at an investor presentation.

Six analysts on average had expected profit of $1.52 per share, with a range of $1.45 to $1.60, Reuters Estimates said. Moody's said demand for structured finance ratings used on more complex debt will stay depressed for a while, and not recover to levels that existed before the global financial crisis.

Profit per share excluding items was $1.82 in 2008 and $2.50 in 2007. Warren Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N) owns one-fifth of Moody's shares and is its largest investor. Moody's rivals include McGraw-Hill Cos' (MHP.N) Standard & Poor's and Fimalac SA's (LBCP.PA) Fitch Ratings.

New York-based Moody's is benefiting as yield premiums that investors demand to take on credit risk decline, while yields on U.S. government debt remain at or near historic lows.

Yields on U.S. corporate bonds are the lowest since the global financial crisis exploded in September, when Lehman Brothers Holdings Inc (LEHMQ.PK) went bankrupt and the federal government essentially took control of American International Group Inc (AIG.N), Fannie Mae (FNM.P) and Freddie Mac (FRE.P).

The average investment-grade corporate bond yields 6.41 percent, the lowest since July 15, Bank of America Merrill Lynch data show. That bond yields 3.65 percentage points more than Treasuries, the tightest spread since Sept 12, the last trading day before Lehman went bankrupt.

Yields and spreads on riskier "junk" bonds are also at their lowest since September.

Corporate borrowing demand could improve as the U.S. economy recovers and businesses spend more. The economy has been in recession since December.

Mark Zandi, chief economist of Moody's Economy.com, expects the recession to end in 2009, helped by federal stimulus that he said is "really quite impressive and will win the day."

Zandi said the nation's unemployment rate, which often peaks after economic conditions start to improve, could top out around 10 percent in the spring or early summer of 2010.

In morning trading, Moody's shares were down 16 cents to $28.59 on the New York Stock Exchange. (Reporting by Jonathan Stempel, editing by Dave Zimmerman)

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