Einhorn on McGraw-Hill: The Worst is Yet to Come

Hedge fund manager David Einhorn isn't a fan of The McGraw-Hill Company's

stock. Earlier today on Bloomberg TV, Einhorn noted that he had been short stocks related to the ratings agencies for quite some time, including McGraw-Hill and Moody's

. He declared that the “worst is yet to come.” In recent days, the government has sued ratings agency Standard & Poor's for the AAA ratings it gave to mortgage-backed securities and CDOs that contributed to the 2008 financial crisis. In a civil lawsuit, the government has sued S&P for $5 billion. McGraw-Hill is S&P's parent company. With a market cap of just over $12 billion, a successful suit by the government could wreak havoc on the business. The government has yet to take action against the other two major ratings firms -- Moody's and Fitch -- but Moody's stock has been trading lower in sympathy to McGraw-Hill's. Analysts at BTIG, in a particularly dire note released this morning, compared the present situation at Moody's and S&P to the situation that faced now-defunct accounting agency Arthur Anderson in 2002. BTIG writes, “Some have argued that MCO and MHP, which have a virtual oligopoly in the credit-ratings space, are too large and too ingrained in global finance to simply go away. But if Arthur Andersen, with its 85,000 employees and its blue-chip client list could go “poof,” then why couldn't MCO and MHP? Is such an outcome really so hard to imagine for two firms whose brands have been wrecked to such an extent?” Shares of MCO traded down over two percent Thursday, near $46.50; shares of MHP were down a similar amount and trading around $43.80.