Morgan Stanley CEO John Mack has his back against the wall as shareholders and clients pull out of the New York-based bank. Now, credit rating agency Moody's Investors Service prepares to tighten the noose even further with a possible downgrade. The downgrade is partly contributing to the stock's drop-off Friday of nearly 35% to $8 by midday.
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Moody's placed its A-1 long-term rating on Morgan Stanley's debt of nearly $200 billion on review for a possible downgrade. With the credit markets in a deep freeze right now, a downgrade would make it even more difficult and expensive for Morgan Stanley to borrow money when the markets thaw. A downgrade would also be another psychological blow to investors of the bank who are trading on fear, and any negative news has shown to weigh down the stock. Morgan's current A-1 debt rating is the fifth-highest investment-grade rating on Moody's scale. The rating agency cut Morgan Stanley's long-term credit
rating from Aa3 in August.
Moody's attributed its review for a downgrade on the following:
- "its expectation that an extended downturn in global capital market activity will reduce Morgan Stanley's revenue and profit."
- The bank "will need to adapt the firm's business activities and balance sheet to operate in a bank holding company structure."
Despite those challenges, Moody's was quick to point out: "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." -
Gerald Magpily
