MEMO FROM THE FUTURE: MOODY'S

CEO Edition

BOARD STRATEGY MEMO June 2030

TO: Moody's Board of Directors, Executive Committee

FROM: Robert Fauber, Chief Executive Officer

DATE: June 2030

SUBJECT: Transforming From Ratings Agency to Data & Analytics Company

THE INFLECTION

Moody's faces an existential question: what is our value in a world where AI can assess credit risk?

The honest answer: the Ratings business, which has been our profit engine, is becoming commoditized. But the Analytics business is becoming essential.

We need to acknowledge this transition and execute it aggressively.

THE REALITY

Our Ratings business is under structural pressure:

1. AI credit models are more accurate than human analysts. This is documented. Institutions can build or license models that predict defaults better than our ratings suggest.

2. The NRSRO moat is weakening. Regulators have been critical of rating agencies' conflicts of interest (we rate debt that issuers pay us to rate). Pressure to weaken the NRSRO requirement is building.

3. Growth is slowing. Ratings revenue growth has decelerated from 5-6% to 2% annually.

4. PE debt deterioration is eroding credibility. We downgraded $18B+ of PE-backed debt in 2028-2029, signaling we were late in our assessments. This damages our credibility and invites regulatory scrutiny.

But—and this is critical—our Analytics business is thriving:

1. Financial institutions are investing heavily in AI for risk management. They need high-quality data and analytical tools. We provide both.

2. Analytics revenue is growing 12%+ annually. This is genuine growth in an important market.

3. Margins in Analytics are strong (35%+ operating margin), driven by data assets and platform leverage.

THE STRATEGY

Moody's must deliberately transition from a Ratings agency (declining) to a Data & Analytics company (growing).

This doesn't mean abandoning Ratings. The NRSRO oligopoly generates $3B+ in reliable revenue. But it means de-prioritizing Ratings growth and accelerating Analytics growth.

Phase 1: Protect Ratings Margins

The Ratings business will never grow fast again. But it can remain profitable if we:

• Maintain regulatory moat (NRSRO designation provides protected revenue)
• Rationalize costs (consolidate ratings operations, eliminate low-value services)
• Accept that growth is 1-2% annually
• Target 50%+ operating margin on the Ratings business

Expected outcome: Ratings business generates $3.5B revenue and $1.75B operating income by 2035, with minimal growth.

Phase 2: Accelerate Analytics Growth

Analytics is where real value creation happens.

Investment areas: - Data platforms: Build enterprise-grade data infrastructure that financial institutions can plug AI models into - Risk models: Develop AI-powered risk models (credit, market, operational) that outperform traditional approaches - ESG analytics: Environmental, social, governance data and analysis (growing market, regulatory tailwind) - Vertical solutions: Industry-specific analytics (banking, insurance, corporate Treasury)

Hiring: Expand Analytics team by 40-50% over three years. Target: 3,000+ data scientists, engineers, and domain experts.

Budget: $1-1.5B annually in Analytics R&D, up from $500M today.

Expected outcome: Analytics revenue reaches $8-10B by 2035, growing 12-15% annually.

Phase 3: Reposition the Narrative

Change how we describe Moody's:

Today: "Credit rating agency" 2035: "Data and risk analytics company for financial institutions"

This repositioning matters for valuation. A data/analytics company trading at 20-25x EBITDA (growth multiple) is worth more than a ratings agency trading at 15-18x EBITDA (mature multiple).

FINANCIAL IMPLICATIONS

2030 (today): - Ratings revenue: $3.2B, operating income: $1.6B - Analytics revenue: $4.6B, operating income: $1.6B - Total operating income: $3.2B (42% margin)

2035 (projected): - Ratings revenue: $3.5B, operating income: $1.75B - Analytics revenue: $8-10B, operating income: $3-3.5B - Total operating income: $4.75-5.25B - Total revenue: $11.5-13.5B - Operating margin: 40-42%

This implies: - Revenue CAGR (2030-2035): 8-10% - Operating income CAGR: 8-10% - Valuation multiple: 20x EBITDA (vs. current 18x) - Implied stock price by 2035: $600-700

ORGANIZATIONAL CHANGES

New structure:

We're creating separate business units with distinct P&Ls:

1. Ratings — mature business, focus on profitability and protection of moat
2. Analytics — growth business, focus on market share and innovation
3. Corporate/Support

Leadership:

New Chief Analytics Officer hired from outside (fintech/AI background). This signals seriousness about Analytics as strategic priority.

Compensation:

• Analytics roles: Higher equity, performance-based compensation (attract talent)
• Ratings roles: Stable, lower upside (mature business)

THE DIFFICULT CONVERSATION

This transition requires discipline. We will:

• Flatten Ratings organization (reduce redundancy, improve margins)
• Reallocate capital from Ratings growth to Analytics growth
• Accept that Ratings is a "harvest" business, not a growth business
• Invest heavily in Analytics, accepting that it will take 3-5 years to see returns

This is not exciting growth. This is disciplined management of a portfolio business.

CLOSING THOUGHT

Moody's was built on the insight that systematic credit analysis creates value. That insight is more true in the AI era than ever before.

But the way we create value is shifting: from "we rate credit" to "we provide the data and tools that help institutions assess credit."

This is a higher-margin, more defensible business than pure ratings. And it's where genuine growth is.

Let's execute this transition.

Robert

Confidential — Board and Executive Committee Only