Berkshire Hathaway, Moody's: Collateral Damage
NEW YORK (
) --
Berkshire Hathaway
(BRK.A) - Get Report
Chairman Warren Buffett can't be very happy about the performance of
Moody's Investors Service
(MCO) - Get Report
in recent days, but, fortunately for his investors, the ratings giant accounts for less than half a percent of Berkshire's massive holdings.
Despite reducing its holdings twice since late July, Berkshire still owns 16.6% of Moody's. Berkshire's 39.2 million shares are worth just under $740 million going into the open Monday -- a hefty sum, unless one considers Berkshire's market cap of $153.7 billion. Even if Buffett lost the whole investment, which is hard to imagine, he could still take a big write-off to offset a portion of the more than $3 billion he's already made on paper with his investment in Goldman Sachs last year.
For the rest of Moody's shareholders, Buffett's actions should be of paramount interest, as this is not an instance when the savvy investor is selling into strength.
The ratings agencies are facing legal and regulatory threats linked to the role they played in the boom and bust in structured finance, where banks including
Citigroup
(C) - Get Report
,
Goldman Sachs
(GS) - Get Report
,
Morgan Stanley
(MS) - Get Report
and
JP Morgan Chase
(JPM) - Get Report
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.
Moody's shares were down 3.7% Friday to $18.85 on more than triple the issue's average daily volume. The stock has lost more than 28% since Sept. 16, when it briefly touched $25.92. Shares of McGraw-Hill Companies, parent of credit ratings agency Standard & Poor's, have fallen 16% during that same period.
The latest problems for Moody's involve a former analyst at the ratings giant who is now accusing it of knowingly giving inappropriately high ratings. The analyst, Eric Kolchinsky, has taken his concerns to Congress and was scheduled to testify at a hearing on Thursday, but the proceedings were postponed after Rep. Edolphus Towns (D., N.Y.), chairman of the Oversight and Government Reform Committee, said he wants Moody's to respond to the allegations.
Additionally, Rep. Paul Kanjorski (D., Pa.), chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, said Friday he plans to hold a hearing of his own on Sept. 30. Though it's been widely known that Kanjorski was working on legislation to reform the credit ratings process, his announcement may also have contributed to the selloff on Friday.
Moody's shareholders will be watching what Buffett does from here very closely. With two rounds of selling completed this summer, the latest coming at the beginning of September, a third trimming of the stake in such a tight time frame would be a clear indication that the Oracle of Omaha, a steadfast buy-and-hold investor, is losing faith.
