World Bank cuts forecast for world economic growth in
Especially since the early s, Moody's frequently makes its analysts available to journalists, and issues regular public statements on credit conditions. According to Moody's, the purpose of its ratings is to "provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged".
To each of its ratings from Aa through Caa, Moody's appends numerical modifiers 1, 2 and 3; the lower the number, the higher-end the rating. Aaa, Ca and C are not modified this way. As Moody's explains, its ratings are "not to be construed as recommendations", nor are they intended to be a sole basis for investment decisions. Moody's traces its history back to two publishing companies established by John Moody , the inventor of modern bond credit ratings. It experienced early success, selling out its first print run in its first two months.
By , Moody's Manual was a nationally recognized publication. Moody returned in with a new publication focused solely on railroad bonds, Analysis of Railroad Investments ,   and a new company, Moody's Analyses Publishing Company.
The following year, Moody incorporated the company as Moody's Investors Service. The relationship between the U. As the market grew beyond that of traditional investment banking institutions, new investors again called for increased transparency, leading to the passage of new, mandatory disclosure laws for issuers, and the creation of the Securities and Exchange Commission SEC.
Banks were permitted only to hold "investment grade" bonds, following the judgment of Moody's, along with Standard, Poor's and Fitch. In the decades that followed, state insurance regulators approved similar requirements. In the late s and s, commercial paper and bank deposits began to be rated. As well, the major agencies began charging the issuers of bonds as well as investors — Moody's began doing this in  — thanks in part to a growing free rider problem related to the increasing availability of inexpensive photocopy machines ,  and the increased complexity of the financial markets.
The end of the Bretton Woods system in led to the liberalization of financial regulations, and the global expansion of capital markets in the s and s. Moody's and nine other agencies later five, due to consolidation were identified by the SEC as "nationally recognized statistical ratings organizations" NRSROs for broker-dealers to use in meeting these requirements.
The s and beyond saw the global capital market expand; Moody's opened its first overseas offices in Japan in , followed by offices in the United Kingdom in , France in , Germany in , Hong Kong in , India in and China in Department of Justice ,  as well as criticism following the collapse of Enron , the U.
From to , revenues from rating structured financial instruments increased more than fourfold. Its new model was based on trends from the previous 20 years, during which time housing prices had been rising, mortgage delinquencies very low, and nontraditional mortgage products a very small niche of the market. On July 10, , in "an unprecedented move", Moody's downgraded subprime mortgage-backed securities that had been issued the year before.
Moody's, along with the other major credit rating agencies, is often the subject of criticism from countries whose public debt is downgraded, generally claiming increased cost of borrowing as a result of the downgrade.
Moody's has occasionally faced litigation from entities whose bonds it has rated on an unsolicited basis, and investigations concerning such unsolicited ratings. In the mids, the U. Justice Department 's antitrust division opened an investigation to determine whether unsolicited ratings amounted to an illegal exercise of market power ,  however the investigation was closed with no antitrust charges filed.
Moody's has pointed out that it has assigned unsolicited ratings since , and that such ratings are the market's "best defense against rating shopping" by issuers. In November , Moody's announced it would begin identifying which ratings were unsolicited as part of a general move toward greater transparency.
Following the financial crisis, the SEC adopted new rules for the rating agency industry, including one to encourage unsolicited ratings. The intent of the rule is to counteract potential conflicts of interest in the issuer-pays model by ensuring a "broader range of views on the creditworthiness" of a security or instrument. The "issuer pays" business model adopted in the s by Moody's and other rating agencies has been criticized for creating a possible conflict of interest , supposing that rating agencies may artificially boost the rating of a given security in order to please the issuer.
Thomas McGuire, a former executive vice president, said in that: The global financial crisis of the late s brought increased scrutiny to credit rating agencies' assessments of complex structured finance securities. Moody's and its close competitors were subject to criticism following large downgrade actions beginning in July Faced with having to put more capital against lower rated securities, investors such as banks, pension funds and insurance companies sought to sell their residential mortgage-backed securities RMBS and collateralized debt obligation CDO holdings.
In , a study group established by the Committee on the Global Financial System CGFS , a committee of the Bank for International Settlements , found that rating agencies had underestimated the severity of the subprime mortgage crisis , as had "many market participants". According to the CGFS, significant contributing factors included "limited historical data" and an underestimation of "originator risk" factors.
The CGFS also found that agency ratings should "support, not replace, investor due diligence" and that agencies should provide "better information on the key risk factors" of structured finance ratings. In October , Moody's further refined its criteria for originators, "with loss expectations increasing significantly from the highest to the lowest tier".
In May , Moody's proposed adding "volatility scores and loss sensitivities" to its existing rankings. The lawsuits alleged that the agencies inflated their ratings on purchased structured investment vehicles. From Wikipedia, the free encyclopedia. For other uses, see Moody's disambiguation. New York City portal Companies portal Economics portal. Retrieved 30 August Journal of Economic Perspectives. The New Masters of Capital: Moody's Corp, Thomson-Reuters Corp.
Retrieved 1 December A Century of Market Leadership". Retrieved 17 August Can They Protect Investors? Analysis and Evaluation of Bonds, Convertibles, and Preferreds. Archived from the original on 2 November The negative GDP statistics poured cold water on relief that South Africa had avoided a junk status downgrade by international rating agencies.
The main contributors to the negative GDP growth rate were the mining and quarrying industry, transport, storage and communication industry. Mining and quarrying fell by Transport, storage and communication fell by 2. The two other industries that contracted in the first quarter were agriculture, forestry and fishing The strongest performer in value added in the first quarter was Real Estate, Finance and Business services.
The industry increased by 1. It was an historic GDP release, with Stats SA for the first time publishing production and expenditure side data simultaneously, following a three-year process in which it took over responsibility for producing the numbers previously compiled by the Reserve Bank. This addressed important governance issues, ensuring the Bank kept its distance from the production of the GDP expenditure, just as it does from the inflation figures, which Stats SA produces.
Expenditure on real gross domestic product fell by 0.