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Rating Action:

Moody's lowers Morgan's hybrid securities ratings

24 Feb 2010

Approximately $19.8 billion of hybrids affected

New York, February 24, 2010 -- Moody's Investors Service downgraded its ratings on certain Morgan Stanley hybrid securities in line with its revised Guidelines for Rating Bank Hybrids and Subordinated Debt published in November 2009. Moody's downgraded Morgan's junior subordinated debt securities with cumulative deferral features to Baa2 from A3. Morgan's non-cumulative preferred securities were downgraded to Ba1 from Baa1. This concludes the review for possible downgrade that began on November 18, 2009. The rating outlook for Morgan and its subsidiaries remains negative.

Prior to the global financial crisis, Moody's had incorporated into its ratings an assumption that support provided by national governments and central banks to shore up a troubled bank would, to some extent, benefit the subordinated debt holders as well as the senior creditors. The systemic support for these instruments has not been forthcoming in many cases. The revised methodology largely removes previous assumptions of systemic support, resulting in today's rating action. In addition, the revised methodology generally widens the notching on a hybrid's rating that is based on the instrument's features.

RATING ACTION IN DETAIL

The starting point in Moody's revised approach to rating hybrid securities is the Adjusted Baseline Credit Assessment (Adjusted BCA). The Adjusted BCA reflects a bank's standalone credit strength, including parental and/or cooperative support, if applicable, but excludes systemic support. The starting point for Morgan's ratings is the Adjusted BCA of A3 for Morgan Stanley Bank, which is then adjusted for structural subordination for securities issued by the holding company or its subsidiaries.

The ratings on the following hybrid securities are affected:

Morgan Stanley Capital Trust III, IV, V, and VI trust preferred securities were downgraded to Baa2 due to their junior subordinated claim in liquidation and cumulative deferral features.

Morgan Stanley Capital Trust VII and VIII trust preferred securities were downgraded to Baa2 due to their deeply junior subordinated claim in liquidation and cumulative deferral features.

Morgan Stanley Trust A, B and C (PEPs) were downgraded to Baa2 due to their junior subordinated claim in liquidation and cumulative deferral features. The rating on the PEPs trust preferred securities reflects the junior subordinated debt issued by Morgan Stanley and held by the trusts as well as Morgan Stanley's ability to deliver common equity under the terms of the equity forward contract. The rating does not address the value of the common equity when delivered.

Morgan Stanley Series A, B and C non-cumulative preferred securities were downgraded to Ba1 due to their deeply subordinated claim in liquidation and non-cumulative coupon skip mechanism.

PREVIOUS RATING ACTIONS AND MOODY'S METHODOLOGIES

The previous rating action on Morgan Stanley was on 17 December 2008, when Moody's downgraded the long-term issuer rating to A2 from A1 and the Bank Financial Strength Rating to C from B-.

The principal methodologies used in rating Morgan Stanley were Moody's "Global Securities Industry Methodology", published in December 2006, and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", published in March 2007, Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt published November 17, 2009, which are available on http://www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Please visit www.moodys.com to access the following documents for additional information:

Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt -- November 17, 2009

Frequently Asked Questions: Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt -- November 17, 2009

The following ratings were affected:

Issuer: Morgan Stanley

..Downgrades:

....US$7,839M Preferred Stock, CUSIP 617480884, Downgraded to Ba1 from Baa1

....US$520M Preferred Stock, CUSIP 617480876, Downgraded to Ba1 from Baa1

....US$1,100M Preferred Stock, CUSIP 61747S504, Downgraded to Ba1 from Baa1

.... Multiple Seniority Shelf, SEC Registration 333-156423, Downgraded to (P)Ba1 from (P)Baa1

.... Multiple Seniority Shelf, SEC Registration 333-156423, Downgraded to (P)Baa3 from (P)Baa1

Issuer: Morgan Stanley Capital Trust III

..Downgrades:

....US$880M Preferred Stock Due 2033, CUSIP 617460209, Downgraded to Baa2 from A3

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust IV

..Downgrades:

....US$620M Preferred Stock Due 2033, CUSIP 617462205, Downgraded to Baa2 from A3

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust V

..Downgrades:

....US$500M Preferred Stock Due 2033, CUSIP 617466206, Downgraded to Baa2 from A3

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust VI

..Downgrades:

....US$863M Preferred Stock, CUSIP 617461207, Downgraded to Baa2 from A3

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust VII

..Downgrades:

....US$1100M Preferred Stock Due 2046, CUSIP 61750K208, Downgraded to Baa2 from A3

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust VIII

..Downgrades:

....US$825M Preferred Stock Due 2046, CUSIP 61753R200, Downgraded to Baa2 from A3

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust IX

..Downgrades:

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust X

..Downgrades:

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust XI

..Downgrades:

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust XII

..Downgrades:

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Capital Trust XIII

..Downgrades:

.... Preferred Stock Shelf Due 2011, SEC Registration 333-156423, Downgraded to (P)Baa2 from (P)A3

Issuer: Morgan Stanley Trust A

..Downgrades:

....US$2,000M Preferred Stock Due 2042, CUSIP 617465505, Downgraded to Baa2 from A3

Issuer: Morgan Stanley Trust B

..Downgrades:

....US$2,000M Preferred Stock Due 2042, CUSIP 61751S507, Downgraded to Baa2 from A3

Issuer: Morgan Stanley Trust C

..Downgrades:

....US$1,579M Preferred Stock Due 2042, CUSIP 61753S505, Downgraded to Baa2 from A3

New York
Peter E. Nerby
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
David Fanger
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's lowers Morgan's hybrid securities ratings
No Related Data.
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