Buffett cuts his Moody’s stake
Written on July 25, 2009
Warren Buffett’s Berkshire Hathaway Inc. this week lowered its stake in credit ratings provider Moody’s Corp. to 16.98% from 20.4%, the first reported reduction since 2000.
Moody’s shares fell slid $2.57, or 9.7%, to $23.95 in after-hours trading after Berkshire disclosed the sale in a U.S. Securities and Exchange Commission filing.
Berkshire said its National Indemnity Co. insurance unit sold 7.99 million Moody’s (MCO) shares at an average $27.25 per share in open market transactions from Monday to Wednesday, for gross proceeds of $217.6 million.
The sales reduced Berkshire’s (BRK.A) stake in the New York-based parent of Moody’s Investors Service to about 40.01 million shares from 48 million.
National Indemnity still owns 24.29 million Moody’s shares, or 10.31%, while Berkshire’s Geico auto insurance unit owns 15.72 million shares, or 6.67 percent, the filing shows.
It was not immediately clear why Berkshire lowered its Moody’s stake. Berkshire, through Buffett’s assistant Carrie Kizer, did not immediately return a request for comment.
Moody’s spokesman Michael Adler said: "We’re aware of Berkshire Hathaway’s holdings, and we have no comment on their intentions."
The sales were revealed a day after the Obama administration proposed new disclosure and conflict of interest rules on credit rating agencies cheap life insurance.
Many investors and lawmakers blame Moody’s, McGraw-Hill Cos’ Standard & Poor’s and Fimalac SA’s Fitch Ratings for assigning top ratings to risky mortgages and debt that later collapsed, fueling the global credit crisis.
Critics say the agencies lack independence because they are paid by issuers they rate.
Buffett has long defended Berkshire’s investment in Moody’s, even after the agency stripped the Omaha-based insurance and investment company of its "Aaa" rating in April.
"I don’t think they were unique in being unable to spot what was coming," Buffett said May 2 at Berkshire’s annual meeting.
He added that because few companies rate credits and the business requires little capital, "it has the fundamentals of a pretty good business. It won’t be doing the volume probably for a long time in certain areas of the capital markets."
Dun & Bradstreet split off Moody’s in 2000. Moody’s share count doubled in 2005 because of a stock split.
Filed in: marketing.