Many of the world’s biggest banks were downgraded in their credit ratings, down by one to three notches , by the rating agency Moody’s.
The long term debt rating of Morgan Stanley, one of the closely watched firms, was downgraded by two notched , which is one more than was expected. The stock however rose in after hours of trading. The current rating leaves Morgan Stanley just a step below Goldman Sachs Group, but its above CitiGroup and Bank of America in its credit ratings still.
Credit Suisse , which got a warning from Switzerland’s central bank, over weak capital was the only bank which suffered a downgrade of three notches. However, its A1 deposit and ratings on senior debt are much higher than of its peers.
The markets have been bracing for the credit ratings since February, the time when Moody’s Investor Service had announced that it was launching a review of the 17 major banks having global capital markets operations. These firms are facing diminished growth prospects and profitability because of the increased regulations and operating conditions in general.
The cuts in the long term debt ratings could increase the costs of funding for Morgan Stanley and other banks as the trading partners will ask for a higher collateral. The impacts also stand to be muted as the cuts were in line with the indications that had been given in February by Moody’s, on how much the rates were going to be cut.
The three notch cut, which was being expected for Morgan Stanley, is a big surprise in case of Credit Suisse . Morgan Stanley has said that the cuts in ratings do not reflect the strategic actions that have been taken in the recent times and they are well positioned to deliver for shareholders and clients, given the de-risked balance sheets and stability in funding sources along with diverse mix of businesses and a strong leadership team.