Moody's List of Riskiest Companies Forgets to Include Moody's
Rating agency tries to get ahead of defaults.
Make-up calls belong in basketball, not finance.
In an attempt to render itself useful, Moody's Investors Services (MCO) is issuing a list dubbed "The Bottom Rung," cataloguing the riskiest 15% of all companies it tracks. The effort, which the company claims is an attempt to get ahead of the looming mountain of corporate defaults, has already ruffled a few feathers.
According to the Wall Street Journal, Eastman Kodak (EK), which appeared on the list, issued a harsh rebuttal last night, saying "Any speculation, however informed, suggesting that Kodak is less than financially sound is irresponsible."
Among the list of allegedly shaky companies: Familiar names like Ford (F), General Motors (GM) and Chrysler made the cut, along with airlines AMR Corp (AMR) and US Airways (LCC). Retailers, restaurants and even a few energy firms also appeared in this corporate hall of shame, in addition to chipmaker Advanced Micro Devices (AMD) and chemical manufacturer Georgia Gulf Corp (GGC).
Moody's, along with fellow ratings agencies Standard and Poor's (MHP) and Fitch Ratings Services, played a major role in the recent financial market meltdown. Conflicts of interest with debt issuers, faulty models and lax internal controls all led to credit ratings that were unreliable at best, deceptive at worst.
Unfortunately for Moody's, gone are the days when investors valued haphazard assessments of credit risk. The Bottom Rung, while generating ample work for Moody's customer-complaints department, isn't likely to reclaim any of the company's lost glory.
When a firm that specializes in assessing whether borrowers will repay their debts fails to see the biggest wave of defaults in a generation, it's safe to say that company isn't very good at its job.
Minyanville's Jeff Macke said it best last week:
In an environment in which DC is creating and changing the laws of corporate governance on a daily basis, it's simply lunacy to allow 3 groups complicit in the creation of the underlying problem to go on their merry ways while members of the House endlessly lambast bankers for being bankers. Take the gun away from the 5 year old; suspend the ratings authority of Moody's, S&P and Fitch.
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