Warren Buffett’s Berkshire Hathaway Inc cut its stake in Moody’s Corp by 2 percent, the second reduction in two months, amid profit declines at the ratings firm and criticism of its reports on mortgage-backed securities.
Berkshire, still the largest stockholder in Moody’s, sold 794,388 shares on Tuesday and Wednesday, according to a regulatory filing on Thursday. Buffett’s firm, which cut its stake in New York-based Moody’s by 17 percent in July, still holds 39.2 million shares. The stake sold was worth about US$20.7 million, based on the closing price on Wednesday.
Moody’s and rival Standard & Poor’s (S&P) are under pressure as the economic downturn curbs demand for their ratings. The recession exposed weaknesses in structured securities once decorated with gold-standard AAA grades, prompting a lawsuit by investors that claim Moody’s and S&P hid the risks of investments linked to subprime mortgages. Buffett has said Moody’s damaged its brand as ratings proved inaccurate.
“He’s seen a change in the prospects of the business,” Jeff Matthews, author of Pilgrimage to Warren Buffett’s Omaha, said in an interview. “He’s a very loyal shareholder. For him to sell the stock in something like Moody’s, that’s a big deal.”
Moody’s fell US$0.11 to US$24.15 in extended trading yesterday, after dropping 7.1 percent in regular New York Stock Exchange trading. The shares are down 41 percent over the last year.
Moody’s and S&P, which is owned by McGraw-Hill Cos, lost a bid this week to have the class-action lawsuit dismissed as a US judge rejected arguments that their business was protected by free-speech rights. The two firms, both based in New York, have been criticized by investors and lawmakers including Senate Banking Committee Chairman Christopher Dodd.
“They made a mistake that many, many people made,” Buffett said at Berkshire’s May 2 annual meeting in Omaha, Nebraska. “There was almost a total belief throughout the country that house prices certainly wouldn’t fall significantly.”
Buffett has tried to profit from the swoon in equity markets last year by boosting Berkshire’s holdings in financial companies hurt by the economic crisis. He agreed last year to spend US$5 billion buying preferred shares in New York-based Goldman Sachs Group Inc, and this year added to stakes in Wells Fargo & Co and US Bancorp.
Berkshire, the largest shareholder in Coca-Cola Co and San Francisco-based Wells Fargo, scaled back spending on stocks to the lowest in more than five years in the second quarter as the company added corporate debt and securities issued by governments outside the US.
Buffett, the chairman and chief executive of Berkshire Hathaway, transformed the firm from a failing textile maker into a US$151 billion company by acquiring out-of-favor securities and businesses in industries ranging from insurance and utilities to candy-making and underwear.
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