MCO
#Sure, <UNK>.
I'm actually going to hand this over to Michel, and let him offer his thoughts on this.
Thank you, Ray.
I think this is really a matter of two factors.
One, the currency play, and two, the rate differential that exists and the spread differential between the US and European markets.
And I think the both of these fronts, I think we continue to expect to see favorable factors for such a trend.
So we don't have a number to offer here, but I think the conditions that have been favorable to date are expected to remain in place at least for the short term, medium-term.
<UNK>, let me just add something.
We show, in terms of our revenue performance, the revenue is based on the location of the issuer rather than the market into which it is issued.
So think about that in the context of our US versus European corporate revenues.
Sure, <UNK>.
Just a second while we look that up.
For the first quarter of 2015, the incentive comp accrual was about $38 million.
And that's up from last year's $29.5 million.
And we're running about on target with where we expected to be at this point in the year.
That number is one that obviously bounces around.
If we're doing worse, that number is smaller.
If we find ourselves doing better, of course that number would become a bit heavier.
But $38 million for the first quarter.
We're really currency.
As a matter of fact, most of the outlook story, the changes, relate to currency.
The 37% growth is really driven again by the US municipal market, which had a very strong quarter.
We expect that the US market is going to continue to be strong through the year, although not at first quarter levels, as I think I mentioned earlier.
And again, it's a combination of refinancing with the opportunity to do so in an attractive rate environment, and the expiration of lockup periods for some of the municipal bonds.
No, it is, again, an FX story.
I know this starts to sound like a broken record.
But we have reasonably large recurring revenues coming out of Europe.
A lot of frequent issuer pricing arrangements and the monitoring fees that go along with that.
We're seeing growth, but that growth is really being impacted by the decline of the euro.
They are running pretty much in line with the way they were through 2014.
So we continue to get a nice kick from price, and we anticipate that continuing.
Our coverage has been strong, and obviously, we are ---+ we would attribute that to a combination of the work we're doing on our Analytics.
And the demand that that is creating from the institutional investor immunity for issuers to get Moody's ratings.
Beyond that, I think it's really a matter of operational execution, and we're paying a lot of attention to executing well.
Nothing fancy about that.
Ironically, not really in that area.
And your correct, the Structured Finance area in particular shows some coverage volatility.
It always has.
Rating shopping is more prevalent there.
But the area where we are strong in the commercial mortgage backed securities area, in terms of multi-family or multi-property deals.
We've been strong in even before there were where there was a moratorium on the ratings from one of our competitors.
And so the strength continues, but it hasn't really changed in terms of the mix we are picking up because of external events.
I guess the short answer, <UNK>, is no, I don't think so.
The demands on financial Institutions globally in terms of meeting stress tests, capital requirements, liquidity requirements, the businesses that they have been curtailed from.
Are all continuing to put pressure on profitability, willingness to make loans.
And I think also are increasing the awareness from corporations and municipal entities that they need access to multiple forms of liquidity and capital.
And so the bond market is ---+ it's not a substitution for bank relationships, an alternative and in addition to the banking relationships.
I think that's probably a fair number.
It's going to vary quarter to quarter cyclically, but structurally, I think that's very much intact.
Sure, <UNK>.
We're looking at the first quarter 2015 over 2014.
Investment grade at $87 million was running at 29% of the almost $300 million we saw in the CFG for the first quarter.
That 29% is up from last year's 18%.
So as we said, investment grade has been running hot and strong, and the jumbo deals are really terrific.
Spec grade at about $63 million is up from last year's $53 million.
Percentages are about the same, 21% versus 20%.
Bank loans are down, both absolutely and in percentage terms, about $45 million versus last year's $67 million.
15% of the total gross of last year's 25%.
And other is at $104 million, which is up from last year's $97 million.
But on percentage terms, down to 35% versus last year's 37%.
So the big change there is the increase in percentage from investment grade, spec grade bonds, and percentage terms up a little bit, bank loans down.
Very important for everyone to note.
We can do okay with a changed mix, and we're doing pretty well despite the fact that the investment grade piece was stronger in the first quarter.
Looking at structured, first quarter 2015 versus 2014, looking at asset-backed securities.
Absolute numbers, about $21 million, about flat from last year's $23 million.
Percentages, it's 21% of the total for structured of $101 million, down from last year's 24%.
Residential mortgage-backed securities, which does include covered bonds, about $18 million.
Flat from last year's $18 million.
Percentage-wise down to 18% versus last year's 19%.
Commercial real estate, up $33 million from last year's $29 million.
In percentage terms it's also up to 33% versus last year's 31%.
Structured credit, which is primarily CLO's, up to about $29 million from last year's $25 million.
Percentage-wise, up to about 28% versus last year's 26%.
And then FIG, first quarter 2015 versus 2014.
$94 million in revenue versus last year's $85 million.
Banking about $63 million, up from last year's $57 million.
That stayed flat at about 67% of the percentage total.
Insurance, at about $25 million versus last year's $21.5 million is up to 27% from last year's 25%.
Managed investments, $3.5 million versus last year's $6.6 million is down.
That's 4% of FIGS total versus last year's 7%, and then others about 2%.
And then lastly, PPIF, total is $100 million versus last year's $80 million, that's a big jump.
PFG and sovereign, up absolutely to $56 million from last year's $41 million.
Up in percentage terms 56% versus last year's 51%.
Project and infrastructure, also up about $45 million from last year's $40 million.
Percentage-wise, down to 44% from last year's 49%.
And that's the total for PPIF.
So that's the whole view on the ratings business.
We have the MIS other line, which is something new, <UNK>.
That includes KIS and ICRA, so that's up little bit from last year because the ICRA consolidation, $7.8 million versus last year's $3.3 million.
And of course the ICRA percentage at 56% of the total is higher, because we didn't have that view as of last year.
And sorry, just for clarification.
The MIS other is ICRA's non-ratings businesses.
The ratings agency has its revenues rolled up into the lines of business that we have for MIS already.
Thanks for that clarification there.
It's rounding, <UNK>.
This is pretty hard for us to forecast.
So what we're looking at, it's a negative 4% to 5% in revenue.
It's positive 4% to 5% in operating expenses.
As we talked about before, our main exposures are the euro and the British pound.
At the end of the first quarter, the pound was at $1.48 and the euro was at $1.07.
And we had run this year with the euro at $1.15, was what we've had in our forecast.
Now, a very happy phenomenon from me as the CFO, is the euro this morning is at $1.12.
So we are kind of coming back in the right direction, and Ray and I talk about the euro every day.
So what that all boils down to is, you were to see the euro to further weaken, a $0.05 decline in the euro would cost us another $20 million in revenue but help us $4 million on the expense side.
So the net would be we'd be down $16 million or about $0.05 on EPS.
So this is actually pretty simple.
The shorthand we use is if the euro falls another $0.05 versus the dollar, it'll hit us $0.05 in EPS which is a pretty simple metric for you to use.
It could be, <UNK>.
It depends what happens going forward.
As I said, we're slightly cheered by the fact that the euro is up a little bit, but this is bouncing around far too much for us to put a tight range around this.
And as you saw, we held guidance.
And we don't like to move guidance after the first quarter, that would be a correct observation.
But this currency piece makes it a little bit harder to know where we are going to go.
So we are going to have to just watch it.
And the euro could continue to strengthen, or it could weaken from here.
And those two situations don't look the same.
That's why we're being a little bit thoughtful, and we'll see where we get to as the year goes on.
I think we view, <UNK>, we always have our sort of $50 million in expense flexibility if things we got difficult.
We can slow down on things, and certainly slowing hiring would be the first thing.
But I always want to put some perspective on this, because Moody's is a growth Company and you need to think about us that way.
We're looking at 72% of the S&P 500 have reported so far, and sales growth for the S&P 500 all-in, is minus is minus 4.1%.
And if you take out the energy companies, if you want to make that the argument, the growth is up 2%.
We just put up 13% growth, and 18% percent on a constant currency basis.
So in order to do that, we are spending some money.
But as you know, our shareholders have been telling us if we can get growth, we should do that.
And I think we've demonstrated pretty effectively we are able to do that, despite some pretty hefty currency headwinds.
We think we've had a pretty good quarter.
Understood.
I'll comment a little bit, and then Mark may want to comment.
I guess we've had the confluence of two frustrating events in the Professional Services line.
And I'm managing the Copal Amba business, Mark is managing the rest of Professional Services which includes CSI.
But the two really have nothing to do with each, other than they are reported up through the same line in Moody's Analytics.
I did mention the product line that we decided to reduce in scope for Copal Amba.
But we very much like the trends and the outlook for Copal Amba.
I think I've mentioned before, it has generally Moody's like growth rates and close to Moody's like margins.
And right now as banks are looking to reduce costs, being able to offshore knowledge processes is growing at a pretty terrific rate.
We are very pleased with what we are seeing at Copal Amba.
We were just out in India last week, a group of us, and we're very pleased with the opportunity that that business presents.
So just a little bit of a lapping problem.
And I don't know if Mark has anything more to add about CSI than what he's already said.
Mark.
I would just add that in training and certification, ignoring the currency impact which is quite substantial, I would say the underlying business is okay.
It's not growing as well as the rest of Moody's Analytics, so it's below trend in that respect but it's all right.
Yes, I think Linda did mention it.
Trailing 12 month sales is 24% growth.
That includes WebEquity as well.
Which would be a small piece.
Yes, it's a small piece.
A couple of points.
I can talk about Moody's.
I don't really know anything more that you do about how other firms got to their performance levels in the first quarter.
We have talked about the Moody's story pretty extensively here.
So, <UNK>, I actually don't have a lot to add to that.
I apologize.
Yes, I think that the banks have got to work through an evolving, regulatory and profitability environment.
That is going to have an impact on lending.
It's also I think going to continue the disintermediation trend that we've been seeing.
And so I think that's structural as well.
<UNK>, it's Linda.
I'm going to read to you from the Fed's press release on this topic from November 7th.
It says, the annual Shared National Credits Review found that the volume of criticized assets remains elevated at $340.8 billion or 10.1% of total commitments, which is approximately double pre-crisis levels.
So let's assume that the banks are listening to the feds on that front, and perhaps they are tamping down leverage lending in this higher risk category.
Because they've got to hold more capital against these loans, as we said, even if they put them into CLOs later.
So it's pretty important that that situation be understood, and I would urge you to take a look at what the Fed is saying and also at the research we've written on this topic.
First of all, congratulations, <UNK>, on your joining <UNK>t Research.
And the mid-case the base case we're looking at now is $30 million of expense ramp.
And our first-quarter expenses were $494 million.
I think on an earlier call, we had said maybe $500 million for the first quarter, and I think we had had a steeper ramp originally that might have even been $40 million to $50 million.
So we are kind of backing off on that.
Again, I would caveat, this is probably the number I dislike giving the most because it can vary based on a whole bunch of different things.
And this is cutting a pretty finely to give that midpoint of $30 million of expense ramp Q1 to Q4, but that's our best guess as of right now.
No.
If these are US issuers, US domiciled companies, we would be charging those in dollars.
When we look at volume and we look at headcount, obviously, we are pleased when both are up.
But because of the way the pricing is structured I would say as a general rule, seeing more smaller issuers, a higher count, would make more of a difference than a higher dollar volume.
