Will The 2008 Financial Crisis Investigation Cost Moody's Billions?

Nothing good can come to you when you've got the US Justice Department “on your assets.”  Enough with the jokes though, this is very serious news to anyone currently invested in Moody's MCO.  The company is under investigation for its conduct in giving good ratings to complex, risky securities involved in the financial crisis of 2008. 

The company is a major credit rating firm, known for rating bonds and other securities. Moody'shad a key role in the unfolding of the 2008 financial crisis, along with Fannie Mae FNMA, Freddie Mac FMCC, and others.

The Justice Department is nearing the end of its case against Standard & Poor's for their controversial ratings on risky securities.  As the book is closing on the Standard & Poor's, a new one opens.  The subject of this new case is none other than Moody's. 

If this investigation results in a lawsuit, the long term prospect on Moody's is likely to be unfavorable to investors.  The investigation against Standard & Poor's could result in a settlement of well over $1 billion.  A price to pay like this for Moody's would definitely hit the company's bottom line, as it is worth noting that MCO has a current market value around $19 billion.

Moody's stock has experienced high volume trading on Monday, upon news of the investigation against the company.  The average trading volume is about 1 million shares.  Investors across the board are engaging in high trading activity today though, with about 5 million shares being traded to start February.  We did see a broad rally in stocks to end Monday trading though, but MCO still finished lower by 2.2 percent.

Moody's is currently a Zacks Rank #3 (Hold).  It has a beta of 1.55, with a quarter Earnings Expected Surprise Prediction of -4.26 percent.  It reports its earnings on 2/6/15.  Stay cautious, as this stock is sure to experience more volatility with the days and weeks ahead, as more details on the US Justice Department's investigation against Moody's are unveiled.

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