2008-10-14 00:42:01 -
- While the closure of Morgan Stanley's equity investment from Mitsubishi UFJ (announced today) is a positive development that strengthens the bank's capital position and should address near-term equity market concerns, Fitch Ratings believes the recent stresses on Morgan Stanley's core businesses are likely to continue for the foreseeable future. As such, Fitch believes Morgan Stanley's credit risk profiles are
more consistent with long-term ratings of 'A' and short-term ratings of 'F1.'
Fitch has downgraded Morgan Stanley's long and short-term Issuer Default Ratings (IDRs) to 'A/F1' from 'AA-/F1+', reflecting continued expected challenges in profitability and funding despite the additional capital injection from Mitsubishi UFJ. Fitch's rating downgrade also takes into account the continued challenges Morgan Stanley faces in its transition to a financial holding company. The Rating Outlook remains Negative to reflect the weakened earnings potential of investment banking operations in this tumultuous economic period.
A complete list of affected ratings follows the end of the release.
Fitch expects Morgan Stanley to experience a material reduction in revenues as its three strongest revenue generators face declines. Customers are migrating away from its premier prime brokerage business due to deleveraging and concerns around the protection of client assets. Morgan Stanley's investment banking activities are also facing economic headwinds, as is its commodities trading business.
Morgan Stanley has embraced a bank holding company structure which Fitch expects to result in greater focus on risk appetite and risk reduction. Morgan Stanley is expected to make asset and business transfers into Morgan Stanley Bank N.A. Morgan Stanley Bank N.A. is expected to become a major funding vehicle through deposits. Fitch's ratings recognize the depositor preference a bank charter provides. Deposits will provide a less credit sensitive source of funds although we expect a majority will be generated from brokered accounts and as a consequence will be more interest rate sensitive than the typical bank.
The notching of Morgan Stanley, the parent, recognizes the dependency of creditors on the earnings and dividend capacity of the operating subsidiaries, mainly its broker dealers and banks. Debt holders are subordinate to secured and senior creditors of these operating entities.
Morgan Stanley has bolstered its liquidity through asset sales and debt issues that were invested in cash and Treasuries. While Fitch believes the firm has sufficient liquidity to meet near term debt maturities, counterparties remain highly sensitive to the systemic risk and may reduce uncommitted and committed lines or increase collateral margin thereby raising the need for additional liquidity.
Fitch has taken the following rating actions on Morgan Stanley and subsidiaries:
Morgan Stanley
--Long-term IDR downgraded to 'A' from 'AA-';
--Long-term senior debt downgraded to 'A' from 'AA-';
--Subordinated downgraded to 'A-' from 'A+';
--Preferred equity downgraded to 'BBB+' from 'A+';
--Short-term IDR downgraded to 'F1' from 'F1+';
--Short-term debt downgraded to 'F1' from 'F1+';
--Individual downgraded to 'B/C' from 'B';
--Support affirmed at '5';
--Support Floor affirmed at 'NF'.
Morgan Stanley Bank N.A.
--Long-term IDR downgraded to 'A+' from 'AA-';
--Long-term deposits downgraded to 'AA-' from 'AA';
--Short-term IDR downgraded to 'F1' from 'F1+';
--Short-term deposits affirmed at 'F1+';
--Individual downgraded to 'B/C' from 'B';
--Support affirmed at '1'.
Morgan Stanley Australia Finance Ltd
--Long-term IDR downgraded to 'A' from 'AA-';
--Long-term senior debt downgraded to 'A' from 'AA-';
--Short-term IDR downgraded to 'F1' from 'F1+';
--Short-term debt downgraded to 'F1' from 'F1+'.
Morgan Stanley Canada Ltd.
--Short-term IDR downgraded to 'F1' from 'F1+';
--Short-term debt downgraded to 'F1' from 'F1+'.
Bank Morgan Stanley AG
--Long-term IDR downgraded to 'A+' from 'AA-';
--Short-term downgraded to IDR 'F1' from 'F1+;
--Individual downgraded to 'B/C' from 'B';
--Support affirmed at '1'.
Morgan Stanley Capital Trust II -VIII
--Trust preferred downgraded to 'BBB+' from 'A+.
Morgan Stanley Capital Securities A, B, C
--Trust preferred downgraded to 'BBB+' from 'A+.
Morgan Stanley International Finance SA
--Short-term debt to 'F1' from 'F1+'.
The Rating Outlook remains Negative.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Eileen Fahey, +1-312-368-5468 (Chicago)
Leslie Bright, +1-212-908-0622 (New York)
Media Relations:
Tyrene Frederick-Mack, +1-212-908-0540 (New York)
Sandro Scenga, +1-212-908-0278 (New York)
