Analysis: Companies assess bank relations after Moody's move

Thu Jun 21, 2012 6:35pm EDT
 
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By Jed Horowitz

NEW YORK (Reuters) - In the weeks leading up to Moody's downgrade of major global banks, corporate treasurers quietly accelerated their own reviews of where to put their bank deposits, who they trade swaps with and who they borrow from.

On Thursday, their caution was validated, as Moody's Investors Service (MCO.N: Quote) downgraded the ratings of 15 banks, with the deepest hits taken by Bank of America (BAC.N: Quote), Citigroup (C.N: Quote), Morgan Stanley (MS.N: Quote) and Royal Bank of Scotland (RBS.L: Quote).

Some treasurers had prepared by adding more banks to their credit facilities to diversify the risk of a Lehman Brothers-like bank failure. Some also adjusted their deposit relationships.

Banks, for their part, had been reaching out to treasurers both offensively and defensively, trying to keep clients and win new business ahead of potential turmoil from Moody's review.

"They occasionally mention that they don't know how Morgan Stanley (MS.N: Quote) or someone is going to survive," said Nicholas Bijur, treasurer of PG&E Corp PCG.N, the San Francisco-based gas and electric company. "All the banks call me all the time to tell me what great shape they are in."

Bijur, a former Morgan Stanley employee, said he does not believe that any of the 19 banks in the utility company's $4.2 billion credit facility are at risk of going under, including some European ones. "It is an opportunity, though, to be more critical of their credit quality," he said.

Morgan Stanley Chief Executive James Gorman said before the announcement that the downgrade of two to three notches that Moody's had telegraphed would be undeserved but "manageable." The company and its bank subsidiary were clipped two rungs to three steps above junk status.

The ratings agency cut Citigroup Inc (C.N: Quote) and Bank of America Corp (BAC.N: Quote) to just two steps above "junk" status.   Continued...