It’ll just have to depend how Moody’s fucking feels, okay? This is an art, not a science.
New York, October 09, 2008 — Moody’s Investors Service placed the long-term debt ratings of Morgan Stanley (senior debt at A1) and its subsidiaries on review for downgrade. All short-term ratings were affirmed at Prime-1.
Moody’s review is based upon its expectation that an extended downturn in global capital market activity will reduce Morgan Stanley’s revenue and profit potential in 2009, and perhaps beyond this period. In addition to the depressed market environment, Morgan Stanley will need to adapt the firm’s business activities and balance sheet to operate in a bank holding company structure. This could limit profit opportunities for Morgan Stanley, though the firm’s risk profile could be lowered, thus mitigating this concern.
As well, customer and investor concerns regarding wholesale investment banks have also put pressure on Morgan Stanley. Investor, counterparty and customer confidence is critical to the funding and profit generation of the firm, especially in a hostile market environment. During its review, Moody’s will focus on the success of the actions that management takes to alleviate these confidence pressures and maintain customer franchises, while retaining key producers in a difficult environment.
Moody’s also said that, in its view, Morgan Stanley’s recent performance has been relatively solid, it has acted to solidify its capital base, it has maintained a good liquidity profile, and it has benefited from a level of systemic support that is factored into the rating. The benefits of these attributes relative to the risks cited above will be considered by Moody’s during its ratings review.
Morgan Stanley has reported $4.0 billion in income in the first nine months of 2008, though this included gains from credit spread widening on its own debt and asset sales. Nonetheless, Morgan Stanley has been able to outperform many peers who reported substantial losses over the same period. This performance and Morgan Stanley’s profitable and diversified franchises in investment banking, capital markets, retail brokerage business and asset management support the current ratings.
Moody’s noted that Morgan Stanley has moved quickly during this extended crisis to de-risk the balance sheet and reduce leverage. The firm reported a 12.7% Tier One capital ratio at quarter end. Moody’s expects that the investment by Mitsubishi-UFJ will close as scheduled on October 14, 2008. This will increase Morgan Stanley’s capital base through an injection of $3 billion of common equity and $6 billion of preferred equity. Moody’s views the closing of the Mitsubishi-UFJ capital injection as critical to maintaining current rating levels in light of the more challenging business conditions for wholesale investment banks.
According to Moody’s, Morgan Stanley has a good liquidity profile. The firm maintains a high-quality liquidity pool sufficient to cover a wide variety of potential demands such as a contraction in collateralized funding terms, changing margin requirements, outflows of customer balances, and potential loan commitments in addition to normal debt maturities. The firm’s prime brokerage business is largely self-funded and the firm is careful to finance primarily liquid collateral. The firm’s balance sheet has substantially declined in the past year, reducing total funding demands.
Moody’s also said that recent actions by regulators during the credit crisis raise questions as to the level and certainty of support that firms such as Morgan Stanley would receive in market crises. However, Moody’s recognizes that the numerous actions by regulatory authorities to support the industry do lower the risk to creditors. These include the rapid approval of Morgan Stanley’s application to become a Federal Reserve regulated bank holding company, and expanded liquidity provision under the Term Securities Lending Facility and Primary Dealer Credit Facilities. Moody’s current A1 rating reflects this support, and Moody’s views it as a significant source of credit enhancement necessary to maintain Morgan Stanley’s current rating level.
why the fuck does anyone even give a shit what any rating agency says anymore? Credit modeling is not rocket science, and these asshats have not only a) proven they deserve to be referred to as such, but b) that they are completely and utterly useless and should be similarly ignored
How was temple today Anal_yst?
Let me know if you need tomorrows numbers.
I know people.
Baby Jesus
“Anonymous said…
Yves, here’s the bigger question. How fast does Moody’s generally go from review to an actual decision? Goldman was put on lowered outlook. What is the difference, in terms of time frame to a decision?
Perhaps an even bigger question: what does a downgrade do to collateral requirements of various loan agreements? Is it possible that suddenly the supposed $81 billion they have in cash can just WHOOSH! out the door now? Can this be another weekend of terror?”
http://tinyurl.com/4ezjc2
CNBC reporting “Russia’s MICEX suspended once again>”
Could the bailout have accelerated the crash?
A very annoyed Jim rogers just on CNBC. When he asked what the G6 leaders should do he said “they should go down to the bar and have a beer and leave us alone cause the markets don’t like it, they don’t like it”
sorry it’s late not G6 but G7 instead.
MS tomorrow.
http://www.youtube.com/watch?v=2GYSei66Rh4
Sir Anal, I hear ya… and agree…
~SEG
First they came for the Bears,
– but I did not speak out
Then the came for the Merrills
– but I did not speak out
Then they came for the Lehmanites
– but I did not speak out
Then they came for the Morganites
– but I did not speak out
And then the came for me
– but Hank F’ing Paulson’s got my back, bitches!
No, but seriously, this weekend’s going to suck.
Morgan survives. After the hell that broke loose from the LEH collapse, there is no way Washington would ever let MS fail.
My guess is that the Japanese(mitsubishi) buys morgan stanley outright.
Good luck boys the japs are going to be a lot cheaper on the salary and bonuses, you are going to be crunching numbers and making pitchbooks for minimum wage and you are luck if they give you 6 california rolls as a bonus.
NOW GET BACK TO THAT EXCEL SPREADSHEET BEFORE YOU GET THE WHIP AGAIN WHITE BOY.
You know who advances in a Japanese company? The Japanese. Sorry whitey but you will be shut out. I use to work for a Japanese company so I know.
Morgan Stanley is DONE like Britney Spears!
@3, that was originally my post to Yves over at Naked Capitalism. I am still waiting for an answer, but I don’t think anyone has one. If the funding of MS is solid through the middle of next year, I am less concerned.
If this is something that can murder the company overnight, then I am panicked. At the very least, counterparties can’t be feeling very good, even if Moody’s reaffirmed the short-term ratings.
This is nuts. Unless Mack wants to go to jail, Morgan looks perfectly fine on paper.
@3, that was originally my post to Yves over at Naked Capitalism. I am still waiting for an answer, but I don’t think anyone has one. If the funding of MS is solid through the middle of next year, I am less concerned.
If this is something that can murder the company overnight, then I am panicked. At the very least, counterparties can’t be feeling very good, even if Moody’s reaffirmed the short-term ratings.
This is nuts. Unless Mack wants to go to jail, Morgan looks perfectly fine on paper.
Broken bottles broken plates
Broken switches broken gates
Broken dishes broken parts
Streets are filled with broken hearts
Broken words never meant to be spoken
Everything is broken.
Everytime you leave and go off someplace
Things fall to pieces in my face
Broken hands on broken ploughs
Broken treaties broken vows
Broken pipes broken tools
People bending broken rules
Hound dog howling bullfrog croaking
Everything is broken.
GAsparino is an absolute goddamn retard. Can we get this guy off the air? I mean seriously, enoughs enough. CNBC has about as much journalistic integrity as MAD magazine.
i like gasparino. straight up guy. now dennis kneale…
just watch: Monday all G7 countries nationalize their respective banking systems. This is unsustainable. That is the only alternative left other than outright chaos.
Does anyone remember when Moody’s gave the Icelandic banks Aa3 ratings and the shit storm that created? Well, Moody’s was wrong, as they have been on so many times in the past few years. Moody’s was able to value the relative value of companies, in that they could tell you if Bank of America was a better franchise than Key Bank. However, when it came to Structured Finance they never had a clue and still don’t.
The rating agencies have no credibility and who knows if they will ever get it back. My advice to the big three is to only rate stuff they understand and stick to the basics.
@11, haha well White boys will still keep fucking all your Japanese bitches.
~(not white or Japanese)