David Einhorn, hedge fund manager and chairman of reinsurer Greenlight Capital Re Ltd., said Wednesday that the U.S. government's lawsuit against Standard & Poor's has made rating agencies vulnerable.
Einhorn, who also runs the $8 billion hedge fund Greenlight Capital, said on an earnings call for his Cayman Islands-based reinsurer that the civil lawsuit reinforces short positions in Standard & Poor's parent McGraw-Hill and Moody's Corporation.
"We believe the recent case against S&P is a negative for the rating agencies and Moody's is not immune," Einhorn said.
The U.S. government said earlier this month that rating agency Standard & Poor's inflated ratings and understated risks associated with mortgage securities. The lawsuit is seeking $5 billion.
The 2007-2009 financial crisis was due in large part to massive losses triggered by risk mortgage loans packaged and sold to investors, often with top ratings from credit raters.
Einhorn also said that his investment fund lowered its net long exposure to 29 percent at the end of January from 39 percent at year's end. He also said that he added to his short positions, or bets that a company's share price will fall.
He cited the U.S. economy's decline in gross domestic product at a 0.1 percent annual rate in the fourth quarter.
"As the market continues to advance even as the economy doesn't, we tend to become less enthusiastic," Einhorn said.
Einhorn added, however, that his short positions negatively affected performance in January, and that Moody's was his biggest losing short position last year.
Einhorn also said Apple, one of his biggest long positions, "has a fortress balance sheet with opportunities to unlock significant shareholder value." He owns roughly 1.3 million shares in the company
Einhorn announced on Feb. 7 that he is suing Apple to halt the company's falling share price and get it to deploy its $137.1 billion cash pile more effectively. Einhorn proposed that the company issue preferred stock and return more cash to investors.
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