NEW YORK (Reuters) – Shares of Moody's Corp &ltMCO.N> fell sharply on Thursday after hedge fund manager David Einhorn, who correctly questioned the health
of Lehman Brothers four months before its collapse, disclosed he was shorting the venerable ratings agency. Einhorn, whose Greenlight Capital managed $5 billion, said on Wednesday the parent of Moody's Investors Service undercut the value of its primary business — assigning grades to bonds — after giving AAA ratings to insurer AIG &ltAIG.N>, mortgage banker Fannie Mae &ltFNM.N>, bond insurer MBIA Inc &ltMBI.N> and other companies later revealed to be badly overextended. Moody's has also come under fire for granting its top rating to mortgage-backed securities and derivatives later found to be built on sketchy, subprime loans. DAVID VS WARREN The bearish view sets up a battle between Einhorn and legendary investor Warren Buffett, whose Berkshire Hathaway Inc &ltBRKa.N> is Moody's largest shareholder. For now, the market is lining up behind the boyish hedge fund manager with a growing reputation for spotting overvalued companies. “Investors are piling up bets that shares in Moody's will fall at least 22 percent over the next six weeks,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group. Wilkinson said buying in July $20 strike puts more than doubled to 65 cents per contract. Overall, puts have outpaced calls by 4.5 to 1 during the first half of Thursday.
“Investors appear to be taking their cue from his theory that the ratings business model is flawed and the services of these companies are redundant, Wilkinson said.