McGraw Hill (MHP) came out with unsurprisingly weak earnings this morning, and it guided down for 2009, calling for a profit of $2.20-$2.30, compared to estimates of $2.36.
Financial services revenue for the quarter fell 15%, reflecting lower bond issuance, which feeds right into its bread & butter service of rating debt. When or if the bond market comes back, S&P should pick up right back with it.
But this is ridiculous. This whole crisis has shown that the current model for rating debt is useless or broken. We still have ratings that make no sense — that bear no relation to what market reality (i.e. what CDS or bond spreads are telling us). And the notion of something being AAA-rated is now pretty meaningless. That’s not to say there isn’t a role out there for third-party raters, but is there any indication that the S&P business model is going to change?
As it is, anyone issuing debt still has to get rated by one of the government-chartered oligopolists. And until that changes, it’s doubtful we’ll see any change to the business model here.
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