By Andrew Frye and Matthew Leising Dec. 22 (Bloomberg) — Warren Buffett ’s Berkshire Hathaway Inc. cut its stake in Moody’s Corp. for the sixth time since July after the ratings company was hit by profit declines, lawsuits and criticism from regulators. Berkshire sold 87,992 shares on Dec. 18 for $26.77 apiece and remains Moody’s biggest shareholder , according to a regulatory filing today. Omaha, Nebraska-based Berkshire’s stake is down about 34 percent from the 48 million shares it owned at the end of June. Buffett buys stocks that he says have lasting competitive advantages and superior management. His stake in the rating firm, whose founder John Moody created credit grades a century ago, dates from 2000 and had a value of more than $3.5 billion at its high in 2007. Moody’s has since dropped by more than half amid criticism that inflated credit ratings during the housing boom exacerbated the recession. “Moody’s reputation has certainly been tarnished,” said Meyer Shields , an analyst with Stifel Nicolaus & Co. who has a “hold” rating on Berkshire shares. “My sense is he just thinks there’s less value.” Buffett, who built Berkshire into a $150 billion company by investing in out-of-favor companies, says his ideal time horizon for holding shares is “forever.” Berkshire is the biggest shareholder of Coca-Cola Co. and American Express Co., and Buffett has held those stocks for more than two decades even as both trade below their top prices in the 1990s. Moody’s rose 20 cents to $27.36 today on the New York Stock Exchange and has advanced 36 percent this year . Criticism for Ratings Moody’s, Standard & Poor’s and Fitch Ratings have been criticized for wrongly assigning top grades to U.S. subprime mortgage bonds that caused the financial crisis. Ohio Attorney General Richard Cordray sued the debt raters in November on behalf of five state retirement funds, saying “improper” ratings cost them more than $457 million. Connecticut Attorney General Richard Blumenthal said he plans to join Ohio in suing. “Moody’s continues to be confident in the integrity of its ratings, its people and its processes and believes there is no basis for such a lawsuit,” Anthony Mirenda , a company spokesman, said in an e-mail in response to questions about a potential Connecticut suit. The firm reported nine straight quarterly profit declines through the period ended Sept. 30. Members of the U.S. Congress have said they want to reform the credit-rating industry. The House Financial Services Committee passed a measure in October that would make it easier to sue credit-rating companies while aiming to rein in conflicts of interest. The full House and Senate must approve the measure for it to become law. Pimco Provides Alternative State insurance regulators, led by New York and Illinois, are seeking to reduce their reliance on ratings firms and in November hired Pacific Investment Management Co., manager of the world’s largest bond fund, to replace Moody’s and S&P analysis on home-loan investments held by insurers. “He probably thinks it’s no longer an oligopoly,” Jeff Matthews , founder of the hedge fund Ram Partners LP, said of Buffett and the credit-rating industry. “He changed his mind, and that’s pretty rare.” Moody’s has evaluated corporate creditworthiness since its founder published the Moody’s Manual of Industrial and Miscellaneous Securities in 1900, according to its Web site . Berkshire acquired its stake when Moody’s was spun off from Dun & Bradstreet Corp. in 2000. Freddie Mac, ConocoPhillips Buffett’s stock picking hurt his firm in 2009 as a $1.9 billion, first-quarter writedown on ConocoPhillips stock pushed Berkshire into its first loss since 2001. In 2007, he cashed out of PetroChina Co. and booked a $3.5 billion profit. He sold “nearly all” of a stake in Freddie Mac in 2000 that was valued at $2.8 billion the year before. In both cases, he avoided a subsequent drop. Berkshire previously sold Moody’s shares on 12 days from July 20 to Dec. 14, clustering the reductions in five separate regulatory filings. Berkshire got between $28.73 and $24.81 a share in those transactions, based on the weighted average prices. Over that period, Moody’s shares averaged $24.15, according to Bloomberg data. “Whenever the stock trades in the mid-to-upper-20s he starts selling,” said David Kass , a professor at the University of Maryland’s Robert H. Smith School of Business. “My guess is that he’s trying to bail out completely, at a reasonable price.” To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net ; Matthew Leising in New York at mleising@bloomberg.net .
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Buffett’s Berkshire Sells Moody’s Shares for Sixth Time After Profit Drop
