Reorganization in the Cards for Troubled Moody’s
Moody’s Investors Service, the nation’s oldest credit rater, told employees Tuesday to expect layoffs and sweeping organizational changes in the firm’s first major overhaul in more than a quarter-century.
Moody’s cited competitive pressures for the management and staff shake-up. But the overhaul is just the latest ripple at a venerable Wall Street credit rater whose main business is under investigation by the Justice Department.
As part of the reorganization, Moody’s, a unit of Dun & Bradstreet Corp., will merge its public finance department with its larger corporate bond department.
Moody’s gets paid for rating bonds sold by municipalities, corporations and others, and those ratings help investors and dealers to set the price and yield on bonds.
The firm is in a battle with Standard & Poor’s Corp., Fitch Investors Service Inc. hand other rating companies in the $2.8-trillion market for corporate bonds, municipal bonds and asset-backed securities, created by repackaging loans.
New bond sales in certain markets fell after reaching record highs in 1993, creating fewer rating opportunities. For example, sales of new municipal bonds totaled $159 billion last year, about half the record amount sold two years earlier. Total sales are also shrinking in the mortgage bond market.
The reorganization at Moody’s is intended to eliminate duplication between departments and to make the company more efficient, said spokesman George Fasel. “It’s been 25 years since management at Moody’s has stood back and taken a very broad look at how this company is structured,” he said.
He denied that the changes were a result of the Justice Department probe, noting that the reorganization was in the works since October.
At issue in the federal probe, disclosed this spring, is whether Moody’s may have pressured bond issuers to hire it or risk facing negative comments or lower ratings on their securities.
Early this month, a federal judge dismissed a lawsuit by a Colorado school district claiming Moody’s gave it a bad rating because it refused to hire the agency. Antitrust claims are still pending.
Moody’s, founded in 1909, did not specify how many of its 1,400 staff will be laid off as managers ponder cost cuts in coming weeks.
Among the announced changes is a new way for handling bond-rating assignments. Moody’s public finance department, which rates municipal bonds, will no longer be a stand-alone unit and will now report directly to the company president. The department, a focus of the Justice probe, will be part of a larger group that also rates corporate debt.
The departures of several high-ranking Moody’s officials, including the retirement last week of company President John Bohn, marked the beginning of the broad upheaval. Fasel said Bohn retired for personal reasons.
Bohn was succeeded last week by William Dwyer, who came out of retirement to take the job and has begun to implement the findings of an internal management report.
Dwyer cited the need “to succeed in a more competitive world” in an internal memorandum to employees Tuesday, a copy of which was faxed to the Associated Press.
Moody’s already has replaced its senior management team.
Thomas McGuire, who headed the corporate ratings department, resigned last week in the shake-up. Another official, public finance head Daniel Heimowitz, also resigned.
The new head of public finance, Doug Watson, will report to Don Noe, the new head of credit ratings and analysis. The company’s marketing functions, which used to be controlled by individual departments, will be handled by a separate department run by Scott Douglass, who had headed the company’s international group.
