Moody's downgrades finally released after quite the delay - was that due to last minute negotiations from HSBC and Morgan Stanley crying for Moody's not to drop the hammer ?

http://www.zerohedge.com/news/here-we-go-moodys-comes-out-morgan-stanley-cut-only-2-notches

Here We Go: Moody's Downgrade Is Out - Morgan Stanley Cut Only 2 Notches, To Face $6.8 Billion In Collateral Calls

Submitted by Tyler Durden on 06/21/2012 17:26 -0400

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Here it comes:

• MOODY'S CUTS 4 FIRMS BY 1 NOTCH
• MOODY'S CUTS 10 FIRMS' RATINGS BY 2 NOTCHES
• MOODY'S CUTS 1 FIRM BY 3 NOTCHES
• MORGAN STANLEY L-T SR DEBT CUT TO Baa1 FROM A2 BY MOODY'S
• • MOODY'S CUTS MORGAN STANLEY 2 LEVELS, HAD SEEN UP TO 3
  • MORGAN STANLEY OUTLOOK NEGATIVE BY MOODY'S
  • MORGAN STANLEY S-T RATING CUT TO P-2 FROM P-1 BY MOODY'S
  But the kicker:
  ONLY MORGAN STANLEY, HSBC CUT LESS THAN MOODY'S ORGINAL MAXIMUM.
  And there you have it - the reason for the delay were last minute negotiations, most certainly involving extensive monetary explanations, by Morgan Stanley's Gorman (potentially with Moody's investor Warren Buffett on the call) to get only a two notch downgrade. And Wall Street wins again.
  Recall, from MS' 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)."

  So instead of $9.6 billion, MS will face only$6.8 billion in collateral calls.

  Still the firm is not out of the woods:

  Any indications of control failures, a marked increase in risk appetite or deterioration in leverage or other capital metrics would lead to downward pressure on the ratings.

  The negative outlook on the parent holding company reflects Moody’s view that government support for US bank holding company creditors is becoming less certain and less predictable, given the evolving attitude of US authorities to the resolution of large financial institutions, whereas support for creditors of operating entities remains sufficiently likely and predictable to warrant stable outlooks.

  
  
  Sure enough, here is the immediately released Morgan Stanley statement. Odd that the firm knew in advance what the rating cut would be...

  While Moody’s revised ratings are better than its initial guidance of up to three notches, we believe the ratings still do not fully reflect the key strategic actions we have taken in recent years.  However, their acknowledgment of our long-term partnership with MUFG as well as our industry-leading capital and liquidity highlight some of the transformative steps we have taken.  With our de-risked balance sheet, stable sources of funding, diverse business mix and strong leadership team, we are well positioned to deliver for clients and shareholders.

  
  

  
  

  And let certainly not forget JP Morgan:

  
  
  

  The negative outlook on the parent holding company reflects Moody’s view that government support for US bank holding company creditors is becoming less certain and less predictable, given the evolving attitude of US authorities to the resolution of large financial institutions, whereas support for creditors of operating entities remains sufficiently likely and predictable to warrant stable outlooks.

  
  

  The lowering of the standalone credit assessment to a3 positions JP Morgan in the first group of firms with significant global capital market activities. This position reflects the risks related to JP Morgan’s (i) very large capital markets business (representing 26% of reported firm-wide revenues in 2011); (ii) relatively high absolute level of secured and unsecured wholesale funding within the overall balance sheet; and (iii) the recent control failure within its Chief Investment Office (CIO), which has tarnished JP Morgan’s otherwise strong track record of risk management. These factors are mitigated by (i) JP Morgan’s diversified and sustainable earnings streams from its five other lines of business; (ii) relatively low earnings volatility compared with the peer group; (iii) good structural liquidity and large liquidity pool; (iv) capital levels that are solid and resilient under Moody’s stress tests; and (iv) leverage that is below the industry median.

  JP Morgan’s recently announced loss within the CIO was an important factor in the downgrade of the standalone credit profile. It illustrates the challenges of monitoring and managing risk in a complex global organization — and highlights the opacity of such risks. The firm has substantial earnings and liquidity, which affords it the time to work out of the positions. Management is also acting aggressively to stem the losses and has already added new controls to the CIO.

  
  

  These risk factors have been fully incorporated into the current standalone assessment. Since JP Morgan is positioned in the first group of firms with global capital markets operations, upward pressure on the rating is unlikely, absent a material shrinking and de-risking of the investment bank, which Moody’s does not anticipate. Any further control failures, a marked increase in risk appetite or a willingness to increase leverage could lead to downward pressure on the ratings.

  In Summary:

  • Bank of America L-T senior unsecured debt cut to Baa2 from Baa1, outlook negative.
  • Barclays L-T issuer rating cut to A3 from A1, outlook negatuve
  • Citigroup L-T senior debt cut to Baa2 from A3, outlook negative
  • Credit Suisse Group L-T deposit, senior rating cut to A1 from Aa1, outlook stable
  • Goldman Sachs Group L-T senior unsecured debt cut to A3 from A1, outlook negative
  • HSBC Holdings L-T senior debt cut to Aa3 from Aa2, outlook negative
  • JPMorgan Chase L-T senior debt cut to A2 from Aa3, outlook negative
  • Morgan Stanley L-T senior unsecured debt cut to Baa1 from A2, outlook negative
  • Royal Bank of Scotland Group L-T senior debt cut to Baa1 from A3, outlook negative
  • Royal Bank of Scotland plc L-T deposit rating cut to A3 from A2, outlook negative

  • BNP Paribas L-T debt, deposit rating cut to A2 from Aa3, outlook stable
  • Credit Agricole L-T debt, deposit rating cut to A2 from Aa3, outlook negative
  • Royal Bank of Canada L-T deposit rating cut to Aa3 from Aa1, outlook stable
  • Societe Generale L-T debt, deposit cut to A2 from A1, outlook stable
  • UBS L-T debt, deposit cut to A2 from Aa3, outlook stable
  • Deutsche Bank AG L-T deposit rating cut to A2 from Aa3, outlook stable