It’s a “Crapshoot”, says Moody’s CCO

The management team at Moody's Corp. (MCO-NYSE) have had their hands full of late, and thankfully for them a new 52-week low does not appear to be in the cards following the release of their earnings. Analysts should be able to get a better bead on the revenue run rate going forward, and were actually too pessimistic on the top and bottom line estimates for the quarter:

Moody's Corp, under fire for credit rating practices at its investors service unit, said on Thursday fourth-quarter profit fell 54 percent, as credit market turmoil reduced ratings for complex debt.

Net income for the New York-based company fell to $127.3 million, or 49 cents per share, from $278.6 million, or 97 cents, a year earlier. Revenue fell 14 percent to $504.9 million. Analysts on average had expected profit of 47 cents per share on revenue of $475.5 million, according to Reuters Estimates. Reuters

Still, the markets remain a mess, and the chatter over the monoline bond insurers is likely reaching a crescendo. Moody's Chief Credit Officer, speaking at a NYSSA conference, is noting "hysteria" as bean counters attempt to total the damage from subprime residential exposure, but notes it is all a guessing game, calling the attempts at quantifying the numbers a "crapshoot".

The ratings agencies are dragging their feet, given the effects a downgrade of the monoline bond insurers would have. And while many market players resemble deer in the headlights, Bill Ackman is not standing still and stepping up his assault as he smells victory, and attempts to deliver the coup de grace.

Ackman’s mission has been primarily one of educating the masses about what they are up against, no easy task given the complexity of the situation. And while he is certainly talking his book, he brings a certain earnestness to the cause that research obsessed analysts might be able to appreciate.

Today he is differentiating the current morass from what happened to Long Term Capital Management in 1998:

Banks are working to rescue bond insurers now, much as they did with Long-Term Capital Management when it collapsed in 1998, but the situation in this case is fundamentally different, corporate gadfly Bill Ackman said in a letter to regulators.

Hedge fund Long-Term Capital controlled some $100 billion of assets in 1998, but collapsed in the wake of the Russian debt crisis, which triggered a series of margin calls for the firm. A consortium of banks, nudged by the Federal Reserve Bank of New York, infused the fund with capital and liquidated its positions in an orderly fashion.

The problem with LTCM was one of liquidity, Ackman wrote. If the fund had been able to continue financing its positions, they would have eventually proven sound.

Ackman, who has been betting against the bond insurers’ shares for years, argues that they’re different from LTCM because they chose their positions poorly and will likely suffer from insolvency.

Ackman’s latest thesis is that investor interest in capital injections, outside of Warburg Pincus, appears to be non-existent, which confirms that the private market agrees with his assessment.

Ackman is also out today claiming the bailing out the bond insurers will only prolong the pain, and that regulators should let nature take its course.

No pain, no gain.

And you have to wonder, are those guys are Warburg Pincus sweating bullets?  The courage of their convictions is being sorely tested.

Ackman says bond insurers are no LTCM
Reuters

Ackman Letter to Regulators
Reuters PDF
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