For Moodys KMV, Focus on Credit Pays Off.(Company overview)

To Andrew Huddart, president of Moody's KMV, the company has a secret sauce. It is the largest default database ever assembled,O a storehouse of credit-default data from the 1970s forward. That's one of the key competitive differentiators of this firm,O he states.That's what our model is built on.

KMV, a San Francisco company that was built on predictive, quantitative modeling and acquired by credit ratings giant MoodyOs Corp. in 2002, delivers default probability data that banks use in internal rating systems for commercial lending. Huddart, a former executive at Reuters Group and risk analytics specialist Barra and CEO of advisory firm mPower, joined MoodyOs KMV in November 2004. By that time, the outfit had made its name in institutional circles by raising red flags in advance of major corporate failures with uncanny accuracy.

KMV customers were traditionally chief risk officers or chief credit officers, but the imperatives of enterprisewide risk management shine a new light on the companyOs products and create new opportunities. OWe help banks understand the correlation among the different risks across the loan book,O says Huddart. ONow we are finding that the utility of our products is for managing risk across an organization, monitoring of loans across a whole international book of business.O

And responding to enterprise risk, KMVOs technology is also changing. OWeOre in the process of building a new server-based platform that we call our next-generation Portfolio Manager product,O notes Huddart. Residing on a server, the system will be easier to roll out globally than is a desktop application, and can be implemented across an organization.

The firmOs expected default frequency (EDF) measureNderived from equity market and options pricing data, among other calculationsNOhas pretty much become the market standard for probability of default,O Huddart says. But he adds: OI donOt want to say anything that sounds arrogant because thatOs not what weOre about. ... I mean, we have the benefit of only doing credit risk. ThatOs one of the strengths of this firm. More than probably anybody else in the world, we are only focused on measurement of credit risk.O