Three-rung drop would be 'somewhat stunning,' says Gorman

Three-rung drop would be 'somewhat stunning,' says Gorman
Morgan Stanley boss preparing for possible major downgrade by Moody's; hanging out there in the wind
JUN 12, 2012
By  John Goff
Morgan Stanley Chief Executive Officer James Gorman said a three-level credit-rating downgrade by Moody's Investors Service would be “somewhat stunning” given the firm's increased capital. Moody's has said it may reduce the rating on New York-based Morgan Stanley by as many as three levels when it announces the results of an industrywide review this month. Morgan Stanley can manage through any potential cut, Gorman said today at a conference in New York sponsored by his company. “If Moody's goes to the full extent of their initial guidance, we would find, given the numbers I just shared with you, that a somewhat stunning outcome, given the reality of how different the institution is from what it was,” Gorman, 53, said. “But we've prepared for all outcomes.” Gorman highlighted the increase in the firm's capital and liquidity since the financial crisis in his presentation to investors. The bank's liquidity reserve is 23 percent of total assets, up from 11 percent at the end of 2007, while its shareholder equity has doubled, he said. The maximum downgrade, which would be the largest among U.S. banks and place the firm's rating two levels above junk, may raise borrowing costs and force Morgan Stanley to post more collateral on trades. It would also threaten a fixed-income trading turnaround as some counterparties would no longer be able to do derivatives deals with the firm. “We're not panicked over this, but we're prepared for it,” Gorman said. “We'll make whatever business adjustments, if necessary, once we get there.” Moody's announced the review in February and originally slated the ratings actions for the largest banks for the middle of May. The ratings firm later delayed the action, saying it would make cuts by the end of June. “It's been a long process to be hanging out there in the wind waiting for this,” Gorman said. --Bloomberg News--

Latest News

Maryland bars advisor over charging excessive fees to clients
Maryland bars advisor over charging excessive fees to clients

Blue Anchor Capital Management and Pickett also purchased “highly aggressive and volatile” securities, according to the order.

Wave of SEC appointments signals regulatory shift with implications for financial advisors
Wave of SEC appointments signals regulatory shift with implications for financial advisors

Reshuffle provides strong indication of where the regulator's priorities now lie.

US insurers want to take a larger slice of the retirement market through the RIA channel
US insurers want to take a larger slice of the retirement market through the RIA channel

Goldman Sachs Asset Management report reveals sharpened focus on annuities.

Why DA Davidson's wealth vice chairman still follows his dad's investment advice
Why DA Davidson's wealth vice chairman still follows his dad's investment advice

Ahead of Father's Day, InvestmentNews speaks with Andrew Crowell.

401(k) participants seek advice, but few turn to financial advisors
401(k) participants seek advice, but few turn to financial advisors

Cerulli research finds nearly two-thirds of active retirement plan participants are unadvised, opening a potential engagement opportunity.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today’s choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave