Friday, May 29, 2009

Imagine yourself as the head of Moody’s a decade ago. If you’re goal was to destroy the brand, would you have done anything differently?

TO BE NOTED: From Alphaville:

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The curse of the AAA

This time last year, David Einhorn - the hedge fund manager behind Greenlight Capital - took to the stage at the Ira W Sohn Investment Research Conference in New York and in a rather forceful speech - even by activist standards - announced that he was shorting Lehman Brothers and that the firm was indeed, as its CFO had many times said, “incredible” — just for all the wrong reasons.

Einhorn’s detailed takedown had Lehman executives on the ropes for weeks thereafter. And, of course, it was all correct.

Yesterday, David Einhorn - the hedge fund manager behind Greenlight Capital - took to the stage at the Ira W Sohn Investment Research Conference in New York and announced that he was shorting Moodys.

Although Einhorn’s broadside against Moody’s isn’t as quantitatively thorough as was the barrage of numbers he threw at Lehman, it was certainly still forceful. The killer line:

Imagine yourself as the head of Moody’s a decade ago. If you’re goal was to destroy the brand, would you have done anything differently?

Einhorn is slightly late to the game here. The worlds most famous short-selling activist, Jim Chanos of Kynikos Associates, has had a short position on the rating agency for some time now. And indeed, the share price of Moody’s has been on the slide for quite a while too:

Moodys graph
But, if anything, that makes Einhorn’s stance all the more significant. He’s still calling Moody’s out, even after its lost 80 per cent of its value from its 2007 high (currently trading at $26.23, down 65 per cent on the 2007 high of just over $73.)FT Alphaville has uploaded a copy of Einhorn’s speech in full here. Worth reading.

Related links:
When junk was gold: How Moody’s faltered
- FT
Exclusive: Moody’s error gave top ratings to debt products - FT Alphaville [Moody’s/CPDO investigation series]
In depth: rating agencies -FT

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