Ratings agency Moody's downgraded 15 of the world's biggest banks, lowering credit ratings by one to three notches to reflect the risk of losses they face from volatile capital markets activities, but banks criticized the move as backward looking.
Morgan Stanley, one of the most closely watched firms in the much anticipated review, had its long-term debt rating lowered by just two notches, one level less than had been expected, sending its stock up sharply in after-hours trading.
The downgrade left Morgan Stanley more highly rated than Bank of America Corp and Citigroup, but a step below Goldman Sachs Group.
Credit Suisse, which last week was warned about weak capital levels by Switzerland's central bank, was the only bank in the group to suffer a three-notch downgrade. But its new A1 deposit and senior debt ratings still rank higher than many of its peers.
All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities, Moody's Global Banking Managing Director Greg Bauer said in the announcement.
The long-term debt ratings cuts could increase funding costs for Morgan Stanley and other banks, and trading partners may ask for more collateral. But the impact could be muted since the changes were in-line with indications given by Moody's on how much the ratings were likely to be cut.
Besides Morgan Stanley, two other banks fared better than they could have. UBS could have been downgraded by three notches but was only bumped down two spots. HSBC could have fallen by two, but dropped only one notch.
Other banks downgraded by two notches were: Barclays, BNP Paribas, Royal Bank of Canada, Citigroup, Goldman Sachs Group, JPMorgan Chase, Credit Agricole, and Deutsche Bank.
Along with HSBC, ratings for Bank of America, Royal Bank of Scotland and Societe Generale were also cut by one notch.
Nomura and Macquarie were included in an original list of global banks under review, but have already been downgraded.
In a statement, Morgan Stanley said its ratings still do not fully reflect the key strategic actions we have taken in recent years.
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.
Citigroup went beyond defending itself to blasting Moody's for its treatment of US banks in general, and then to praising institutional investors and the US Congress for showing less respect for the agency.
We have been especially surprised by Moody's disproportionately adverse treatment of US firms relative to banks in Europe, Citigroup said in a statement.
Royal Bank of Scotland said the ratings changes were backward-looking and do not give adequate credit for the substantial improvements the Group has made to its balance sheet, funding and risk profile, but said they were manageable