Prominent ratings agency Moody’s Corp. has experienced much legal and regulatory scrutiny within the last few years, prompted by the financial crisis of 2008. However, partner and analyst at hedge fund firm The Children’s Investment Fund (U.K.) Alex Baring has stated that it’s because of these stricter regulations, that Moody’s has emerged as an even stronger business, and Ray McDaniel, Moody’s CEO, is confident in the continued growth of the company.
“A lot of the credit for that goes to Ray. He’s a clever man with an even temperament and the combination has been important for a CEO of a leading rating agency in the years through and since the financial crisis,” said Baring.
Moody’s is one of the oldest and largest independent providers of credit ratings in the world; Ray McDaniel has been its CEO since April 2005 following the retirement of John Rutherf0rd Jr., its former CEO. Recently, McDaniel met with Institutional Investor Editor Michael Peltz to discuss Moody’s past and to delve into its future outlooks. When discussing the financial crisis, McDaniel’s was questioned on Moody’s business strategy and the changes such a downturn can create.
“From a business strategy standpoint, we are always trying to provide the highest-quality ratings we can. We are in a reputation-based business—reputation for accuracy, for independence—and that’s why having a problem like we saw in the housing market and its implication for large numbers of ratings was so harmful to the business,” explained McDaniel. “And we very much prioritize the quality, the predictive content and the insight in the research and ratings that we have. So from that standpoint the business strategy didn’t change, because that was always a priority.”
With interest rates at unusually low levels, Ray McDaniel says that if rates rise under a stagflation scenario, that it could be harmful to Moody’s business on a cyclical basis. However, the company doesn’t see a lot of business confidences in that scenario, and therefore would be more cautious about investing and expanding. Says Ray McDaniel, “[We] would not have the opportunistic refinancing going on. So we would be losing a number of potential cylinders for driving the business forward, at least on a cyclical basis.”
On future growth, McDaniel focused on the growth in bond markets, coming from disintermediation of financial assets out of the banking system and into the bond market. “Second is international growth, and that’s really the development of domestic and regional bond markets. So it’s close complement to the disintermediation that we’re seeing and has a lot of attributes that would look the same. “