Moody's cuts ratings of 15 banks, Morgan Stanley down 2 notches

Thu Jun 21, 2012 7:34pm EDT
 
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By Rick Rothacker and Steve Slater

LONDON/CHARLOTTE, North Carolina (Reuters) - Ratings agency Moody's downgraded many of the world's biggest banks on Thursday, lowering credit ratings of 15 companies by one to three notches.

Morgan Stanley, one of the most closely watched firms, had its long-term debt rating lowered by just two notches, one level less than had been expected, and its stock rose in after-hours trading. The downgrade left Morgan Stanley more highly rated than Bank of America Corp (BAC.N: Quote) and Citigroup (C.N: Quote) but a step below Goldman Sachs Group (GS.N: Quote).

Credit Suisse CSGN.VX, which last week was warned about weak capital levels by Switzerland's central bank, was the only bank in the group to suffer a three-notch downgrade. But its new A1 deposit and senior debt ratings, however, rank higher than many of its peers.

Financial markets have been bracing for the credit rating actions since February, when Moody's Investors Service said it had launched a review of 17 banks with global capital markets operations. These companies face diminished profitability and growth prospects due to difficult operating conditions, increased regulation and other factors, Moody's said.

The long-term debt ratings cuts could increase funding costs for Morgan Stanley (MS.N: Quote) and other banks, and trading partners may ask for more collateral. But the impact could be muted since the changes were in-line with indications given by Moody's in February on how much the rates were likely to be cut.

"The biggest surprise is the three-notch downgrade of Credit Suisse, which no one was looking for," said Mark Grant, managing director at Southwest Securities Inc. "In fact, it was Morgan Stanley that was supposed to be downgraded by that amount and Morgan received only two notches of cuts."

In a statement, Morgan Stanley said its ratings "still do not fully reflect the key strategic actions we have taken in recent years," adding: "With our de-risked balance sheet, stable sources of funding, diverse business mix and strong leadership team, we are well positioned to deliver for clients and shareholders."

Citigroup also reacted sharply, saying it "strongly disagrees with Moody's analysis of the banking industry and firmly believes its downgrade of Citi is arbitrary and completely unwarranted."   Continued...

 
A Moody's sign on the 7 World Trade Center tower is photographed in New York in this August 2, 2011, file photo. REUTERS/Mike Segar/Files