Case Study on Moody’s Marketing Strategy

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Case Background Study: Moody’s

1. History
The history of Moody’s can be traced backed to the two of the publishing companies that have been established by John Moody, who was the inventor of modern bond credit ratings. However, in the year 1990, publishing of first market assessment is credited to Moody that was known as Moody’s Manual of Industrial and Miscellaneous Securities, that was a stepping stone for the establishment of John Moody and Company (Moody’s Corporation pp. n.d.).
By the year 1903, the Moody’s Manual, was recognized nationally. Ironically, due to the financial crisis of 1907, Moody was compelled to sell his business due to the storage of capital, for the sake of several changes in the market. Subsequently in the year 1909, Moody put forth a new publication, with prime focus over the railroad bonds with the name of Analysis of Railroad Investment along with a novice company, i.e. Moody’s Analysis Publishing Company. During the year 1913, Moody broadened the focus of publication and thus inculcated industrial organizations as well as utilities with the name of Moody’s Manual. In the subsequent years, Moody transformed the name of the company with Moody’s Investor Service. As a matter of fact, this trend was followed by so called “Big Three” credit rating companies, such as Poor’s in 1916, Standard Statistics Company in 1922, and the Fitch Publishing Company in 1924 (Hamilton pp. n.d.).
During 1960s and 70s, the emerged the rating of bank deposit and commercial papers and Moody ventured in this business in the year 1970. With the passage of time, the number of credit rating agencies started to grow, including in US as well as in other countries, and resulted in profitability of credit rating business. Due to this fact Moody estimated in the year 2005 that 90% of its credit rating revenues come from fees paid by issuers. During 1980s, the global capital market expanded, so does the opportunities for Moody’s overseas, and it materialized when Moody opened its office in Japan in 1985, followed by United Kingdom in 1986, France in 1988, Germany in 1991, Hong Kong in 1994, India in 1998, and China in 2001. In fact, in the year 1997 Moody was involved in rating of $5 trillion securities for different US and non-US issuers. In 2007, Moody downgraded its 399 securities that were backed by subprime mortgages, which have been issued a year earlier. In the next three months, in downgraded 2506 tranches, all in all, by the end of the crisis, Moody downgraded 83% mortgage backed securities (Moody’s Corporations pp. n.d). It is pertinent to mention here that, in the year 2013, Moody Investor Services gave caution that rating overall credit rating of Thailand might be damaged due to rice-pledging scheme.

2. Business Practices
The role of Moody’s significant in the global capital market. As a matter of fact, Moody provides several services such as credit rating, market analysis, and other financial services. The parent corporation of Moody’s Investor Services is Moody’s Corporation that ultimately provides research as well as credit rating services, which covers the debt instruments and securities along with management of financial risk management. As of the year 2013, the overall revenues of the corporation were $3 billion, and it employs around 8500 people across the globe who maintains the presence of the company in 31 countries (Moody’s Corporation pp. n.d.). The public information provided by Moody’s play a crucial role in the financial sector for a range of different market participants.

Investors
The rating issues by Moody’s contributed amply among the fixed income investors by providing them with proficient standards, which describe the quality of credit within many of the regions. As a matter of fact, the opinion fostered by Moody’s is vital for the overall economic cycle (Moody’s Corporation pp. n.d.). In fact, the ratings issued by company are independent, which greatly contributes in the credit risk and portfolio management.

Issuers
The role of Moody’s for borrowers is pertinent in the global capital markets of todays. The ratings issued by Moody’s are greatly acknowledged among the fraternities of investors in terms of equipping them with needed and relevant information for the purpose of making investments.

Stakeholders
Besides issues and investors, the ratings published by Moody’s are vital for other stakeholders as well, which includes legislators, regulators, and academic researchers. The prime reason behind this widespread use is the underlying transparency, which these stakeholders expect from the data provided by the company. One of the main factors that contribute in this level of transparency and integrity is the in-depth analysis and timely communication, which complements the methodologies and analytical practices adopted by Moody’s.

Geographic and Product Coverage

The investor services provided by Moody’s have strategic relationships with over 11000 corporate issues across the globe, along with 21000 public finance issues. Moreover, the bigness of the company can be estimated from the fact that there are around 76000 structured financial stipulations, which are comprehensively adopted by Moody’s.

3. Relation of business to management
The services offered by Moody’s can greatly be linked to the area of business management; in fact, it does fall within the broad umbrella of business management. As a matter of fact, the issues pertaining to capital investment, bonds, governmental securities, etc. are strategic for any organization, considering their vital interest in the market in which it is operating. However, the roles of needed information that can complement the business made in the said sector are equally crucial. In that regard, the information services provided by Moody’s fulfills the very purpose of these businesses and organization in making strategic decision that ultimately affects their profitability (Rosch pp. 37-51). It is pertinent to mention that services offered by Moody’s include Moody’s Investor Services and Moody’s Analytics, following is their brief overview:
Moody’s Investor Services
These services provide credit rating services at the same time gives research insight to corporations, governmental agencies, and the structured finance securities across the globe. In fact, the goal of Mood’s in this regard is to offer the credit risk assessment as well expert credit opinions.

Moody’s Analytics
Moody’s Analytics business gives products as well as services for the management of credit risk. This happens with the provision of needed software, credit assessment – quantitative, along with economic data and analysis that help firms to manage sophisticated risk.
By this proposition, it can safely be inferred that relation of is mainly to the management of business. Since it is a business for which the decisions regarding the capital investment and credit risks are made and Moody provide assistance in this regard. This ultimately classifies the Services of Moody’s within the ambit of Business Management.

4. Reflection
The credit rating service, as a matter of fact, is offered by many of the companies across the globe. However, in this section, the comparison will be made between the credit rating service provided by Moody’s and that of Dubai Chamber of Commerce (Dubai Chamber pp.n.d.). In fact, this will be done in terms of the different aspects that have been observed in the practices of the credit rating companies in UAE and that of in other countries (US for Mood’s). First and foremost is the role f government in overall credit rating provision for any company or country is pivotal. However, the level of transparency greatly depends on the willingness as well as due support offered from the side of government. Regulatory is another domain that does create a fine line between the practices of credit rating of Moody’s in New York and Dubai. For instance, the regulations of New York are far different from those of Dubai, where culture is considered superior that the business related issues, so this does impact the overall mechanism employed by the organization in these two countries.
As a matter of fact, the rating offered by Dubai Chamber of Commerce includes many of the facets, which are comprehensively discussed in its reports, such as financial information, economic situation of the country, activities, shareholders, payment history, export and import data, investigations or findings, market statistics, etc (ADB pp. n.d.). While the services offered by Moody’s are similar, yet have some of the differences due their access as well as the practice mechanism. It often happens that the government of UAE does not allow such rating agencies (Moody’s) to provide rating services, by this way, the Moody’s often declare unsolicited ratings, which are ultimately required by the borrowers. All in all, the rating agencies do differ in their practices, at least to a certain extent, specifically considering the scenario of United States and UAE (Cohn pp. n.d.). From the holistic point of view, the role of individual corporations and government are pivotal in these practices.

5. Questions
a) How the Moody’s is playing its role in global capital market, specifically of United States?
b) What are the factors that affect the role of Moody’s in fulfilling its role?
c) How each of the factors is addressed by Moody’s?
d) How Moody’s maintain transparency and integrity in risk assessment/credit rating?
e) Overall, how do you think Moody’s can play its role in a better way?

Works Cited

Asian Developmet Bank “Handbook on International Best Practices in Credit Rating” (2008), Retrieved from http://asianbondsonline.adb.org/features/credit_rating_practices/OREI_Handbook_on_International_Best_Practices_WEB.pdf
Cohn, Carolyn “Ratings agencies have no plans to rate UAE, Dubai -Fitch” Reuters (2012), Retrieved from http://www.reuters.com/article
Dubai Chamber “Business Protection for Business in Dubai” (2014), Retrieved from http://www.dubaichamber.com/en/services/business-protection/credit-rating#link1
Hamilton, David. “Rating transitions and defaults conditional on watchlist, outlook and rating history.” Outlook and Rating History (February 2004) (2004).
Moody’s Corporation (2014), Retrieved from https://www.moodys.com/Pages/atc.aspx
Rösch, Daniel. “An empirical comparison of default risk forecasts from alternative credit rating philosophies.” International Journal of Forecasting 21.1 (2005): 37-51.

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Posted on

March 7, 2018

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