The Two Empires of Credit Ratings: Strategy, Power, and the Moody’s vs S&P Narrative

29 Jul

Recent articles from Seeking Alpha and AInvest suggest Moody’s is ‘lagging’ behind S&P Global’s superior performance and market responsiveness. This framing reduces a complex story to a simple scoreboard, missing the deeper architecture at work. The comparison between these agencies reveals two distinct models of credit rating power operating within the same global financial system - not a winner and a loser, but complementary approaches to wielding influence over debt markets.

Understanding their strategic divergence matters because these are not ordinary corporations. They issue the signals that move sovereign and corporate borrowing costs, shape infrastructure financing and economic development, and determine access to capital markets for millions of borrowers worldwide. How they organise their authority tells us something important about the logic of contemporary financial governance.

S&P’s Strategy: Breadth as Influence

S&P Global has built what amounts to market-wide infrastructure. Beyond credit ratings, it operates the indices that define how trillions in assets are allocated, provides commodity price benchmarks that set global energy costs, and maintains the data systems that institutional investors use to make allocation decisions. The $44 billion IHS Markit acquisition in 2022 was the clearest expression of this philosophy - transforming S&P from a financial services firm into what CEO Douglas Peterson called ‘essential intelligence’ for global markets.

The strategy is about positioning S&P at multiple chokepoints in the financial system. When Peterson describes the company’s mission as helping clients ‘push past expected observations and seek out new levels of understanding’, he is articulating a vision of comprehensive market intelligence rather than specialised advisory services.³ The recent decision to spin off the $1.6 billion Mobility division signals a continued focus on core financial infrastructure rather than diversification for its own sake.

This approach creates what Peterson terms ‘powerful software, advanced tools, and the ability to harness insights within a highly efficient workflow’. It is less about being the definitive voice on credit risk and more about becoming the operating system that financial markets run on. S&P’s 80% recurring revenue across non-ratings segments reflects this infrastructure-building logic - once institutions integrate these systems into their workflows, switching costs become prohibitive.

Moody’s Strategy: Depth as Authority

Moody’s has pursued the opposite approach. Where S&P built breadth, Moody’s doubled down on being the definitive authority on credit risk assessment. CEO Rob Fauber frames this as serving clients who need to ‘develop a holistic view of their world and unlock opportunities’ in what he calls a ‘world shaped by increasingly interconnected risks’.

The strategy shows up in Moody’s acquisition pattern - targeted purchases like Cape Analytics for geospatial risk intelligence, climate risk modelling capabilities, and enterprise risk solutions. These are not attempts to build comprehensive market infrastructure. They are investments in becoming better at the core function: assessing the probability that borrowers will default.

Fauber’s recent remarks to the Council on Foreign Relations position Moody’s as ‘the Agency of Choice’ for complex risk assessment. This language reflects a belief that specialised expertise commands premium valuations. Rather than competing on workflow integration, Moody’s competes on analytical sophistication and methodological rigour.

The depth strategy creates different competitive dynamics. Moody’s recent acquisitions and partnerships, including Cape Analytics and its strategic AI collaboration with Microsoft, aim to enhance its core credit assessment capabilities rather than expand into adjacent markets. The result is higher operating margins (48% vs S&P’s 35%) but greater exposure to credit cycle volatility.

Technology Investment: Different Views of Competitive Advantage

The companies’ approaches to AI and technology reveal their strategic philosophies in microcosm. Moody’s has pursued deep partnership with Microsoft, deploying AI tools across its analyst base to enhance the quality of credit analysis rather than automate it away. S&P Global has taken a broader approach, training its entire 35,000-person workforce in generative AI while acquiring companies like ProntoNLP and TeraHelix to embed AI capabilities across its platform.

Neither approach is inherently superior, but they reflect different theories about where technology creates sustainable competitive advantages. Moody’s bets that AI enhances human expertise in complex risk assessment. S&P Global bets that AI enables new forms of systematic market analysis at scale.

Reputation and Power: Two Empires in One System

The market has sorted these approaches into distinct roles. S&P Global is perceived as the diversified growth engine - the company that builds the financial system’s infrastructure. Analysts consistently describe it as ‘more innovative’ and ‘strategically aggressive’ in pursuing new markets and capabilities.

Moody’s is seen as the resilient precision operator - the company that provides authoritative judgment on complex credit decisions. Investment analysis consistently notes Moody’s higher margins and return on capital, but also its greater cyclical exposure.

This creates a duopoly of power where each agency reinforces different logics of financial governance. S&P Global’s systematic, data-driven approach appeals to institutions that need consistent, comparable risk assessment across large portfolios. Moody’s forward-looking, judgment-heavy approach appeals to institutions making complex, one-off credit decisions where analytical depth matters more than systematic comparability. This is not to say that these roles are absolute, of course, but they are broadly accurate.

The divergence shows up in their client relationships and use cases. S&P Global’s infrastructure model makes it indispensable for passive investment management, index construction, and systematic risk management. Moody’s authority model makes it essential for active credit selection, complex structured finance, and situations where regulatory approval requires the imprimatur of analytical expertise.

This is not about one agency ‘lagging’ another. It is about strategic orientation creating different forms of market power that serve different institutional needs.

Conclusion: Why This Matters

Credit ratings are not technical assessments issued by neutral arbiters. They are public signals issued by private institutions that determine access to capital for governments, corporations, and projects worldwide. The strategic choices these agencies make - toward breadth or depth, infrastructure or expertise, systematic process or analytical judgment - shape how risk gets defined and measured in global markets.

Recent regulatory scrutiny, including SEC penalties for recordkeeping failures, highlights the importance of understanding how these institutions organise their authority. Reform efforts that treat them as interchangeable utilities miss the point. They have evolved different approaches to wielding influence precisely because markets demand different forms of risk intelligence.

This is not a story of one agency falling behind. It is a rare case of two firms thriving on opposite sides of the same financial ecosystem - each shaping the rules of global credit in their own way. To understand rating power today, we need to see the system not as a race, but as a balance of depth and breadth.

Rather than asking which agency is ‘winning’, we should ask what their strategic divergence tells us about the evolving logic of financial governance. The answer reveals two empires operating within one system, each pursuing different forms of influence over the flows of global capital.

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