http://www.reuters.com/article/2012/02/16/us-moodys-europe-idUSTRE81E2I820120216
http://www.zerohedge.com/news/margin-stanley-back-bank-must-post-10-billion-collateral-case-3-notch-downgrade
(Reuters) - Moody's warned on Thursday it may cut the credit ratings of 17 global and 114 European financial institutions in another sign the impact of the euro zone government debt crisis is spreading throughout the global financial system.
It was reviewing the long-term ratings and standalone credit assessments of a range of banks, Moody's added. Markets were unaffected by the Moody's announcement.
"Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions," the ratings agency said in a statement.
It said among 17 banks and securities firms with global capital markets operations, it might cut the long-term credit rating of UBS, Credit Suisse and Morgan Stanley by as much as three notches following the review. It said the guidance was indicative.
Among the banks that might be downgraded by two notches are Barclays, BNP Paribas, Credit Agricole, Deutsche Bank, HSBC Holdings, and Goldman Sachs.
Bank of America and Nomura were included in those that might be downgraded by one notch.
The U.S. rating agency said in a separate statement its action on 114 financial institutions from 16 European nations reflected the impact of the debt crisis and deteriorating creditworthiness of its governments.
It cited more fragile funding conditions, increased regulatory burdens and a tougher economic environment for its review of banks and securities firms with global reach.
Moody's salvo follows rounds of downgrades in European sovereign ratings as the euro zone's struggle to keep its weakest link Greece afloat has been driving up borrowing costs and straining finances of other nations.
Last Monday, Moody's cut the ratings of six European nations including Italy, Spain and Portugal and warned it could strip France, Britain and Austria of their top-level AAA grade.
Standard & Poor's cut France's and Austria's top ratings and downgraded seven other euro zone nations last month. It also cut the euro zone's bailout fund by one notch.
Moody's on Thursday also downgraded the insurance financial strength ratings (IFSR) by one or two notches of several insurance companies, which it said related to their investment and operating exposures to Spain and Italy.
These included Unipol Assicurazioni SpA, Mapfre Global Risks, Assicurazioni Generali SpA and Allianz SpA. It affirmed the IFSR of Allianz SE, AXA SA, Aviva Plc and their subsidiaries, but cut the outlook on the rating to negative from stable.
VICIOUS CIRCLE
Asian shares and the euro were weaker on Thursday on concerns about another delay in cementing a bailout for Greece. Traders said markets didn't not show any specific reaction to the Moody's announcement.
In its review of European financial institutions, Moody's said that once completed, the ratings would "fully reflect the currently foreseen adverse credit drivers."
European banks' bond holdings of struggling euro zone nations Greece, Portugal, Ireland, Spain and Italy have trapped Europe in a vicious circle.
The falling value of the debt puts pressure on banks, which in turn weighs on lending and economic activity, making it tougher to sustain the growth that governments badly need to shore up their finances.
The biggest single group among the 114 institutions under review were headquartered in Italy, followed by Spain, with more than 20 each. Nine were headquartered in Britain, 10 in France and seven in Germany.
Moody's said nine of the 17 banks with global reach are included in the list of 114 financial institutions in Europe.
European Union leaders have been trying to put a financial "firewall" around the nations most afflicted by the euro zone debt crisis.
But jittery market sentiment suffered a fresh setback on Wednesday when several EU sources told Reuters that the euro zone was considering a delay in parts of a second bailout plan for Greece.
Moody's said that for 99 European financial institutions, the standalone credit assessments have been placed on review for downgrade. For 109 institutions, the long-term debt and deposit ratings have been placed on review for downgrade.
For 66 institutions, the short-term ratings have been placed on review for downgrade.
with that set up in place and noting the passage of time , consider the articles on Bank of America and Morgan Stanley....
http://www.zerohedge.com/news/margin-stanley-back-bank-must-post-10-billion-collateral-case-3-notch-downgrade
Margin Stanley Is Back: Bank Must Post $10 Billion In Collateral In Case Of 3 Notch Downgrade
Submitted by Tyler Durden on 05/07/2012 18:05 -0400
Last week it was Bank of America. This time it is the bank once again known as Margin Stanley. From the 10-Q: "In connection with certain OTC trading agreements and certain other agreements associated with the Institutional Securities business segment,the Company may be required to provide additional collateral or immediately settle any outstanding liability balances with certain counterparties in the event of a credit rating downgrade. At March 31, 2012, the following are the amounts of additional collateral, termination payments or other contractual amounts (whether in a net asset or liability position) that could be called by counterparties under the terms of such agreements in the event of a downgrade of the Company’s long-term credit rating under various scenarios: $868 million (A3 Moody’s/A- S&P); $5,177 million (Baa1 Moody’s/ BBB+ S&P); and $7,206 million (Baa2 Moody’s/BBB S&P). Also, the Company is required to pledge additional collateral to certain exchanges and clearing organizations in the event of a credit rating downgrade. At March 31, 2012, the increased collateral requirement at certain exchanges and clearing organizations under various scenarios was $160 million (A3 Moody’s/A- S&P); $1,600 million (Baa1 Moody’s/ BBB+ S&P); and $2,400 million (Baa2 Moody’s/BBB S&P)." As a reminder, on February 15 Moody's warned it’s considering downgrades of US banks and may cut Morgan Stanley as much as, you guessed it, 3 notches. Needless to say this explains why "CEO James Gorman has met with the ratings firm more often than usual in the past quarter." Net - if the firm sees a 3 notch downgrade as warned the hit will be an AIG-shudder inducing $9.6 billion, or one third of the company's market cap, and enough to leave all shareholders wishing they had exposure to Greece, and no exposure to Morgan Stanley.
In some better news, Morgan Stanley reported that is trading magic is back making over $100 million in trading profits on 9 days in the past quarter:
Hopefully the firm is as profitable in the current quarter if indeed Moody's follows through on its threat and crushes the equity value of the company.
All joking aside, Morgan Stanley is so lucky it is a Bank Holding Company and has billions in FDIC-insured deposits to buffer any blow to its balance sheet. Right?
and.....
http://www.zerohedge.com/news/gift-keeps-taking-bank-america-facing-62-billion-collateral-call
The Gift That Keeps On Taking: Bank Of America Facing $6.2 Billion Collateral Call
Submitted by Tyler Durden on 05/04/2012 11:32 -0400
There is hardly any more long-suffering investor in this market than anyone who has held the stock of that worst of breed American bank: Bank of Countrywide Lynch (BAC), which following the worst M&A transaction in history, namely its purchase of Countrywide, has found out that one does not pay billions for hundreds of billions in contingent liabilities, which will manifest themselves in tens of billions in put back claims against the under reserved bank over time. But all that is now known, grudgingly, after being pointed out here back in 2010, and when all is said and done, BofA will be finished, with the contingent liability pool spun off in a special purpose entity which files for bankruptcy, while the equity remaining at the successor entity will be worth pennies on the dollar. The question is what are the catalysts that get the bank there. Luckily, yesterday the bank itself highlighted what the key driver to put events in motion may be, after it disclosed that should the bank be downgraded, which it will be as Moody's has warned, it would need to post up to $6.2 billion in collateral: an amount which would cripple the bank's liquidity, and send its stock plunging as visions of AIG resurface, and concerns about a toxic downward spiral emerge.
From Bloomberg:
Bank of America Corp., the lender that has bought back debt to strengthen its balance sheet, said credit downgrades in a hypothetical scenario could trigger demands for about $6.2 billion in collateral.A two-level downgrade of long-term senior debt ratings would have prompted the bank to post about $5.1 billion of collateral tied to derivatives contracts and other trading agreements as of March 31, the Charlotte, North Carolina-based firm said today in a regulatory filing. It would have had to post an additional $1.1 billion of collateral if trading partners opted to tear up contracts in a two-level cut.Moody’s Investors Service, which is reviewing banks and securities firms with global capital markets operations, has said it’s considering downgrades of lenders including Bank of America, ranked second by assets in the U.S. While ratings cuts typically raise borrowing costs and force banks to increase collateral, analysts have said the change was expected.Bank of America may be cut by one grade to Baa2, the second-lowest investment-grade rating, Moody’s said on Feb. 16.Competitors such as New York-based Morgan Stanley may be cut as many as three levels, Moody’s said. The ratings company wrote that credit profiles of investment banks are weakening amid worsening government finances, economic uncertainty and higher funding costs.Finally, it is not a question of whether BofA will be downgraded but when. The answer: soon. We hope readers are ready for what may be the long-anticipated waterfall moment.True to form, Bank of America continues to perform just like any highly contagious virus contract on a wilde spree in Las Vegas. Only in reverse.
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