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Morgan Stanley (MS) Outlook Dims; Three-Notch Credit Downgrade Would Boost Collateral Requirements Substantially

May 8, 2012 9:59 AM EDT
Morgan Stanley (NYSE: MS) shares are lower Tuesday morning following reports the bank may need to put up an additional $7.2 billion in collateral or terminate payments to counterparties and accept an additional $2.4 billion collateral requirement for certain exchanges and clearing houses.

The current requirements are higher than expectations printed with its February quarterly report which said the bank would been about $868 million on a one-notch cut and $5.2 billion if a two-notch cut should occur. On the exchanges and clearing house front, the numbers would be $160 million and $1.6 billion, respectively.

How the math works out in the one-to-two-notch downgrade and two-to-three-notch downgrade collateral requirements remains a mystery.

Morgan Stanley's rating could be cut from A2 down to Baa2. The firm is the only one of the 17 institutions Moody's put on watch for a three-notch cut in February.

Moody's will make a call on Morgan Stanley in June. Shares are off 1 percent Tuesday.


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