NEW YORK – New York Attorney General Eliot Spitzer (search) has subpoenaed Moody's Corp. (MCO), which runs one of the largest credit rating agencies, for information on how it derived ratings for reinsurance companies and mortgage securities, broadening his probe of Wall Street practices.
New York-based Moody's on Friday also said second-quarter profit jumped 40 percent on strong demand for ratings. It said full-year profit and revenue may rise roughly twice as fast as it had previously forecast.
Moody's shares fell as much as 2.9 percent.
In its quarterly report filed with securities regulators, Moody's said it received a subpoena on July 13 for documents regarding its financial strength and subordinated debt ratings for reinsurers since Jan. 1, 1997.
Many federal and state regulators are conducting wide-ranging probes into insurance industry practices.
Moody's also received a subpoena on May 11 for documents related to its credit policies since 1999, securities offerings backed by jumbo mortgages from prime borrowers, and credit enhancement documents. The inquiry into the offerings and products covers June 30, 2000, to June 30, 2003.
Moody's said it was responding and intends to continue cooperating with Spitzer's office. Spokeswoman Fran Laserson declined to elaborate but said, "We think the timing of the disclosure is appropriate."
A spokesman for Spitzer had no immediate comment.
Ratings help determine how much issuers pay to borrow money in the capital markets.
Moody's Investors Service (search) rates credit-worthiness on a 21-notch scale from "Aaa" to "C."
It is one of five nationally recognized credit rating agencies. The others are McGraw-Hill Cos.' Standard & Poor's (search), Fimalac SA's Fitch Ratings (search), A.M. Best Co. and Canada's Dominion Bond Rating Service.
S&P and DBRS have not received subpoenas from Spitzer, company representatives said. Fitch and A.M. Best did not immediately return calls seeking comment.
Moody's shares fell $1.23, or 2.5 percent, to $48.20, on the New York Stock Exchange (search) after earlier falling to $47.99. They had touched a record high on Thursday.
Quarterly net income for Moody's increased to $145.4 million, or 47 cents per share, from $103.5 million, or 34 cents, a year earlier. Results reflected a stock split in May.
Excluding a charge of 2 cents per share related to Japanese sales tax issues, profit was 49 cents per share, 6 cents above the average view of analysts polled by Reuters Estimates.
Revenue rose 25 percent to $446.8 million, including increases of 22 percent in the United States and 30 percent elsewhere. Analysts, on average, forecast $397.7 million.
Moody's expects 2005 profit per share before items to increase 13 percent to 17 percent from a year earlier, and revenue to rise 13 percent to 16 percent. In April, it had forecast 7 percent to 10 percent increases for both.
Analysts, on average, had projected growth of 10 percent in profit per share and 11 percent in revenue.
In a statement, Chief Executive Raymond McDaniel said revenue growth from U.S. residential mortgage-backed and home equity securities ratings was "particularly strong."
Ratings revenue rose 28 percent, to $363.3 million, and in structured finance increased 43 percent. Revenue from research rose 25 percent, and from Moody's KMV risk unit fell 2 percent.