Warren Buffett’s Berkshire Hathaway Inc. this week lowered its stake in credit ratings provider Moody’s Corp. to 16.98 percent from 20.4 percent, the first reported reduction since 2000.
The sale of about 8 million shares was revealed three months after Moody’s stripped Berkshire of its own “Aaa” rating, and a day after the Obama administration proposed new disclosure and conflict of interest rules for rating agencies.
Buffett has long defended investing in the New York-based parent of Moody’s Investors Service, while saying he does not rely on credit ratings to make his own investment decisions.
“Berkshire’s sales are not surprising given that the reputation of rating agencies is essentially on life support,” said Justin Fuller, an analyst at Midway Capital Research & Management in Chicago who runs the website Buffettologist.com.
He said Berkshire might have sold Moody’s to raise cash or because it found better investments elsewhere.
Moody’s shares slid $2.82, or 10.6 percent, to $23.70 in after-hours trading after Berkshire disclosed the sale in a U.S. Securities and Exchange Commission filing. The shares had peaked at $76.09 in February 2007.
Berkshire said its National Indemnity Co insurance unit sold 7.99 million Moody’s shares at an average $27.25 per share in open market transactions from Monday to Wednesday, for gross proceeds of $217.6 million. The sales cut Berkshire’s stake in Moody’s to 40.01 million shares from 48 million.
Berkshire paid $499 million for the larger stake.
National Indemnity still owns 24.29 million Moody’s shares, or 10.31 percent, while Berkshire’s Geico auto insurance unit owns 15.72 million shares, or 6.67 percent, the filing shows.
It was not immediately clear why Berkshire lowered its Moody’s stake. Berkshire, through Buffett’s assistant Carrie Kizer, did not immediately return a request for comment.
Moody’s spokesman Michael Adler said: “We’re aware of Berkshire Hathaway’s holdings, and we have no comment on their intentions.”
Many investors and lawmakers fault Moody’s, McGraw-Hill Cos’ Standard & Poor’s and Fimalac SA’s Fitch Ratings for assigning top ratings to risky mortgages that later collapsed, fueling the credit crisis. They say the agencies lack independence because issuers pay for ratings.
“I don’t think they were unique in being unable to spot what was coming,” Buffett said May 2 at Berkshire’s annual meeting.
He added that because few companies rate credits and the business requires little capital, “it has the fundamentals of a pretty good business. It won’t be doing the volume probably for a long time in certain areas of the capital markets.”
Dun & Bradstreet split off Moody’s in 2000. Moody’s share count doubled in 2005 because of a stock split.
(Reporting by Jonathan Stempel; Editing by Steve Orlofsky, Gary Hill)
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