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Thursday, February 7, 2013

BLOOMBERG: Buffett’s Moody’s Stake May Have Fallen on S&P Lawsuit

Warren Buffett’s Berkshire Hathaway Inc., owner of the largest stake in Moody’s Corp., may have lost almost $300 million on the holding this week as shares of the credit-ratings company plunged.
Warren Buffett, chairman of Berkshire Hathaway Inc. Photographer: Andrew Harrer/Bloomberg
June 2 (Bloomberg) -- Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., talks with Bloomberg's Betty Liu about his relationship with Moody's Corp. executives before his scheduled appearance before the U.S. Financial Crisis Inquiry Commission in New York. (This is an excerpt of the full interview. Source: Bloomberg)
Feb. 5 (Bloomberg) -- U.S. Attorney General Eric Holder speaks at a news conference in Washington about the Justice Department's lawsuit accusing McGraw-Hill Cos. and its Standard & Poor’s unit of three types of fraud in the first federal case against a ratings company for grades related to the worst financial crisis since the Great Depression. Associate Attorney General Tony West; Deputy Assistant Attorney General Stuart Delery; Andre Birotte, the U.S. attorney for the Central District of California; Connecticut Attorney General George Jepsen; California Attorney General Kamala Harris; Delaware Attorney General Beau Biden; Mississippi Attorney General Jim Hood; Illinois Attorney General Lisa Madigan and Iowa Attorney General Thomas Miller also speak. (Source: Bloomberg)
Moody’s tumbled $10.26 this week, the biggest two-day drop in almost four years, closing yesterday at $45.09 in New York. Photographer: Scott Eells/Bloomberg
Moody’s, the second-biggest provider of credit ratings, dropped 19 percent through yesterday after larger rival Standard & Poor’s said on Feb. 4 that it could face a U.S. lawsuit over inflated mortgage-bond ratings. Omaha, Nebraska-based Berkshire held 28.4 million Moody’s shares, or about 13 percent of the firm, as of Sept. 30, according to data compiled by Bloomberg.
Berkshire remained Moody’s biggest shareholder even as Buffett, 82, pared his stake from 48 million shares in 2009. He told the Financial Crisis Inquiry Commission in 2010 that Moody’s wasn’t alone in missing the collapse of the housing market and that he invested in the business because of the pricing power it gets from its “natural duopoly” with S&P, a unit of McGraw-Hill Cos.
“He believes it’s a good business with a wide economic moat and he’s held onto the position for quite some time,” Tom Lewandowski, an analyst at Edward Jones & Co., said yesterday in a phone interview. He generally looks at such occasions as opportunities “to increase his stake.”
Moody’s tumbled $10.26 this week, the biggest two-day drop in almost four years, closing yesterday at $45.09 in New York. If Berkshire continues to own the same number of shares that it did at the end of September, the value of its holding in Moody’s dropped by $291.5 million. The shares still have climbed 17 percent in the past 12 months.

Financial Crisis

The U.S. is seeking as much as $5 billion in penalties from New York-based McGraw-Hill as punishment for inflated credit ratings that Attorney General Eric Holder said were central to the financial crisis. While Moody’s wasn’t sued, a victory by the government would spur other lawsuits, according to Robert Piliero, a lawyer at Butzel Long in New York who’s worked on structured-finance litigation.
Michael Adler, a spokesman for New York-based Moody’s, declined to say whether the company may face a U.S. lawsuit. Buffett, Berkshire’s chairman and chief executive officer, didn’t respond to a request for comment sent to an assistant about whether the S&P lawsuit has changed his view of Moody’s.
Buffett, in a 2010 Bloomberg Television interview ahead of a scheduled appearance before the FCIC, said Moody’s had lost some of its competitive advantage.

‘Bulletproof Franchise’

“What was once a bulletproof franchise may not be bulletproof,” the billionaire said at the time. “It’s still quite a franchise.”
Moody’s made the same error as competitors and investors in assuming that housing pricescouldn’t fall nationwide, Buffett said. “They made big mistakes, but who didn’t during the housing bubble?”
Other top Moody’s shareholders include Vanguard Group Inc., ValueAct Holdings LP and Capital Group Companies Inc., which also was the largest owner of McGraw-Hill as of Sept. 30, according to data compiled by Bloomberg.
McGraw-Hill shares plunged 23 percent this week, wiping out almost $4 billion of market value.
David Einhorn, who runs the New York-based Greenlight Capital LP hedge fund, said in a May 2009 speech that he was betting against Moody’s because ratings are “shunned” by investors. Einhorn, 44, declined to comment for this story.
Berkshire stock has gained 9.5 percent this year as Buffett’s larger equity bets rallied. He hasaccumulated stakes exceeding $13 billion in both Coca-Cola Co. and International Business Machines Corp., and each stock has advanced more than 5 percent since Dec. 31.
To contact the reporter on this story: Zeke Faux in New York at
To contact the editors responsible for this story: Dan Kraut at; David Scheer at

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