Nomura Securities on Brokers and Banks: Moody's Downgrades of Capital Markets

June 22, 2012 9:11 AM EDT
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Nomura Securities on Brokers and Banks: Moody's Downgrades of Capital Markets

Analyst, Glenn Schorr, said, "Moody’s downgrades; as expected, Morgan Stanley (NYSE: MS) a positive surprise. Moody’s completed its much anticipated ratings review of firms with significant capital markets operations. We think the downgrades were mostly in line with expectations (JPMorgan (NYSE: JPM), Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), and Citi (NYSE: Citi) all were downgraded the maximum notches per Moody’s previous guidance), but Morgan Stanley’s revised rating was a positive surprise as the firm was downgraded 2 notches, 1 less than the maximum guidance (but is still Baa1). We think shares of MS will get a small relief rally, while shares of GS, C, BAC, and JPM are unlikely to move much on this news."

"We think the net financial impact of these downgrades will be manageable as 1) potential collateral calls are small percentages of these firms’ liquidity pools; 2) counterparties have been preparing for this for some time and ratings downgrades have been an issue for the last 2+ years (there was little impact on Citi and BAC when they were downgraded back in September of 2011); 3) ratings are a relative game: given that Moody’s downgraded all capital markets firms, no single-firm is an outlier, so we don’t expect to see one company uniquely impacted."

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