Here we go again,,,,,,,,,,,They learned nothing, OH WAIT A MINUTE, maybe they did. They can get away with whatever the heck they want to. I forgot, silly me....
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Morgan Stanley's corporate borrowing costs are already way higher than Goldman Sachs and more downgrades are likely in the works.
The Fiscal Times explains How Morgan Stanley sank to junk pricing
The bond markets are treating Morgan Stanley like a junk-rated company, and the investment bank’s higher borrowing costs could already be putting it at a disadvantage even before an expected ratings downgrade this month.
Bond rating agency Moody’s Investors Service has said it may cut Morgan Stanley by at least two notches in June, to just two or three steps above junk status. Many investors see such a cut as all but certain.
Even before any downgrade, the bank is suffering in the bond markets. Prices for Morgan Stanley’s bonds and credit derivatives have been trading at junk levels since last summer, according to Moody’s Analytics. Prices moved further into the non-investment-grade category over the past two weeks amid troubles in Greece and other Euro zone nations.
"The numbers have changed for the worse," said Otis Casey, director of credit research at Markit. "What has driven that, obviously, is Europe. The perception is – correctly or incorrectly – that Morgan Stanley is one of the U.S. banks most exposed to Europe’s problems."
Morgan Stanley’s problems were compounded by its handling of the Facebook IPO – its high price and large size, and selective disclosure of an analyst’s reduction of his forecasts for the social network’s revenue and earnings. Facebook shares ended regular trading at $27.72 on Friday, down 27 percent from their offering price of $38.
"A bank with a near-junk rating is in ‘no man’s land,’" said Edward Marrinan, credit strategist at Royal Bank of Scotland Group in Greenwich, Connecticut. "Banks rarely thrive with non- or borderline investment grade ratings."
In a May 7 securities filing, Morgan Stanley said it might have to post $7.2 billion worth of additional collateral and termination payments in the event of a downgrade to Baa2, the second lowest investment-grade rating, up from a $6.5 billion estimate it provided three months earlier.
But bond markets are not waiting for a downgrade. On Friday, it would have cost Morgan Stanley 1.20 percentage points more to raise five-year debt than its chief rival, Goldman Sachs Group Inc. The bank would even have to pay a little more than much-smaller competitor Jefferies Group.
"The Street is pretty efficient and is really moving ahead of the ratings agencies," said Carret Asset Management’s Graybill. "It’s never good in this business to have a disadvantage against a strong competitor."
Will Morgan Stanley Survive?
My answer is the same as I said about Citigroup in 2007: Not in one piece. And in spite of shedding numerous pieces over the years, Citigroup and others still have shedding to do.
JP Morgan added fat to the fire with massive derivatives losses, bringing the Volcker Rule back in the spotlight.
Top 5 Banks Have 45 Times Leverage
Reuters reports JPMorgan case puts Volcker Rule and SIFIs back in the spotlight
The massive losses which resulted from JPMorgan Chase hedging its positions against derivatives has once again cast the spotlight on the Volcker Rule and whether systemically important financial institutions (SIFIs) are too big to fail, industry observers said. Questions have also been raised about the firm’s hedging strategy, and what constitutes hedging in the first place.
Industry officials in Asia suggested that JPMorgan’s $2 billion hedging losses might embolden regulators to strengthen the Volcker Rule, on the premise that it would be of benefit to SIFIs. The rule, named after former Federal Reserve chairman Paul Volcker, forms part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and has proposed the separation of proprietary trading from commercial banking activity. Most notably, it has argued against investing in derivatives or using derivatives as a hedge on investments. The rule has, however, faced strong opposition from many of the large global financial institutions.
Top five SIFIs’ OTC derivatives exposures
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Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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