"There are two superpowers in the world today in my opinion. There's the United States and there's Moody's Bond Rating Service. The United States can destroy you by dropping bombs, and Moody's can destroy you by downgrading your bonds. And believe me, it's not clear sometimes who's more powerful.” Thomas Friedman, 1996.
If you were watching the news over the weekend, it may well have come to your attention that Britain’s prized ‘Triple A’ credit rating was downgraded to ‘AA1’ by one of the so-called ‘Big Three’ rating agencies, Moody’s.
This means that it will now be bit more difficult and expensive for the country to borrow money – this could have a profound impact on the finances of everyone.
So just what on earth is the story behind this large, seemingly faceless corporate entity which has such a huge impact on the entire world? Covered has slipped into its best corporate transparency slacks to bring you the lowdown. Behold!
‘FUN’ FACTS REGARDING GLOBAL CREDIT RATING AGENCY, MOODY’S
Well, firstly, whatever it is that Moody’s does– well, there isn’t really any better way of saying this – it sounds really boring. The company provides “international financial research on bonds issued by commercial and government entities,” which doesn't sound hugely exciting.
Basically, it’s like Experian for nation states. Number-crunching on a massive scale. Banks of analysts for as far as the eyes can see. Spreadsheets with cells which stretch as far as the entire surface area of the Brecon Beacons and Snowdonia National Parks combined – you name it. (Probably.)
It was founded in the early 20th century by publisher John Moody, and its first report was a riveting tome by the name of Moody’s Manual of Industrial and Miscellaneous Securities in 1900. It was acclaimed by critics at the time as “the can’t-put-down page-turner of the summer!”
Moody himself is regarded as the inventor of modern bond credit ratings (you didn’t know that? Keep up) and lived from 1868 to 1958 – the grand old age of 90.
In 1962, Moody’s was folded into 'Noo Joisey'-based
maverick detective duo rating firm Dun & Bradsheet and was owned by that outfit until 2000, when it floated on the stock market...making a lot of people very rich in the process. Its share price increased by 300% in the five proceeding years.
Like all the best massive-but-somewhat-under-the-radar global corporate entities, they’ve got offices all over the shop – from Hong Kong to Frankfurt, Tokyo to Dubai and London to Shanghai. But their head office is in good old New York City. It employs around 6,800 people across the world.
The other big two credit rating agencies are the misleadingly titled Standard & Poor’s and Fitch, which has drawn criticism because of its policy of only hiring analysts which fit in with its buffed, tanned ‘look policy’. Rippling fresh-faced beefcakes can often be found at the doors of its head offices clad only in board shorts, looking to entice investors in. What do you mean we've got the wrong Fitch? Oh...
The current president and CEO of Moody's is this fellow- Raymond W. McDaniel Jr. He’s very much a company man, having been at the firm since 1987.
It’s not afraid to slap a downgrading on big economies - Australia in the 80s, Canada Japan and Thailand in the 90s, and most recently, Portugal have all felt the icy hand of a Moody’s downgrade on their shoulder.
The fabled rating system runs from ‘AAA’ (top notch) through to ‘C’ (rubbish) with various flavours of sub-grading inbetween. Great Britain has been downgraded to ‘AA1’, which, on the face of it doesn’t sound too bad. We are “rated as high quality and very low credit risk”...for now, at least.
Anyway, there you go. Everything you wanted to know about Moody’s but were afraid to ask. Surely, we’ve got nothing to worry about….have we?