Friday, December 21, 2007

Moody's vs. MBIA vs. Brokers vs. other financials

MBIA, brokers, banks, etc. have all fallen since the troubles during the summer started yet I pick MCO over all of them (possible exception of GS) because Moody's has no liabilities and no assets to worry about.

MBIA is on the hook for who knows how many billions from their insurance -- potentially enough to bankrupt them or require massive capital infusions. Thursday we learned there are $8 bill more CDO issues for MBIA then we thought yesterday. That's a good chunk of capital.

The brokers -- Merrill, Bear, Morgan Stanley, Citigroup or the banks -- WB, BAC, STI, WFC, etc. -- all have had writedowns and all are likely to keep writing down asset values. Their capital is at risk from all the writedowns, which may put the firm at risk unless they are able to get more capital like Morgan Stanley did today from the Chinese.

Moody's merely renders opinions on the creditworthiness of various securities -- they do not insure those securities; nor do they own any of them and unless they lose some litigation, they have no liabilities whatsoever related to the problems all these other financials are having. Yet the stock is still down 50% from its highs.

Moody's may not be a good stock from here, but I cannot imagine how it couldn't be a better risk reward then all of these other financials because its survival is no where near threatened -- they have no need to raise capital and in fact they have excess capital that can be used to buy back stock.

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