Moody's, S&P Lumber On in Wake of Crisis

NEW YORK (TheStreet) -- Moody's Corp. (MCO)and McGraw-Hill's (MHP) Standard & Poor's have been attacked from all sides since the collapse of Lehman Brothers a year ago, but it appears the credit ratings agencies are still a long way from losing their central role in global finance.

The shares of both companies have taken a beating in recent weeks following a court decision that could expose them to liability for the first time, but, as of Monday, they were still outpacing the S&P 500 for the year . The 20%-plus returns are roughly on pace with Bank of America (BAC) and well ahead of Citigroup (C), two other institutions that have been central to the crisis but are widely seen as long-term survivors.

The solid performance of the stocks reflects the view that, despite a loss in revenue and the threats from regulators and lawsuits, Moody's and S&P continue to enjoy an oligopoly in the credit ratings business along with Fitch Ratings.

The revenue drop and the legal and regulatory threats are linked to the part that the credit ratings agencies played in the boom and bust in structured finance, where banks including Goldman Sachs (GS), Morgan Stanley(MS) and JPMorgan Chase (JPM) pooled ever-more-dubious home loans into bonds that were sold to investors. Many view the agencies as complicit in the wild popularity of these investment vehicles because they assigned triple-A ratings to many of the securities, dramatically understating their risk.

Now the ratings agencies are on the run. Hedge fund manager David Einhorn, of Greenlight Capital, has been shorting Moody's for more than a year, and began shorting McGraw Hill earlier this month after Federal District Court Judge Shira Scheindlin threw out the companies' claims that they were protected from lawsuits related to their ratings by the free-speech provisions of the First Amendment. Einhorn recently told CNBC that Moody's shares were "a lot higher," when he began shorting the company.