New York, October 02, 2020 -- Moody's Investors Service (Moody's) today upgraded E*TRADE
Financial Corp.'s (E*TRADE) senior unsecured ratings to A3
from Baa2. Moody's also affirmed E*TRADE Bank's baa1 baseline
credit assessment (BCA) and P-1 short term bank deposit rating,
and upgraded E*TRADE Bank's Adjusted BCA to a3 from baa1 and the bank's
long-term deposit rating to Aa3 from A2. Moody's withdrew
E*TRADE's issuer and shelf ratings. A complete list of
affected ratings and assessments for both entities can be found at the
end of this press release.
Today's rating action follows the announcement that Morgan Stanley (A2
senior, stable) has completed the acquisition of E*TRADE in
an all-stock transaction. The rating action concludes the
review for upgrade initiated on 21 February 2020 (Moody's places E*TRADE's
ratings on review for upgrade; https://www.moodys.com/research/--PR_418741).
RATINGS RATIONALE
Moody's affirmed E*TRADE Bank's baa1 BCA because it is at the same
level as Morgan Stanley's lead bank's (Morgan Stanley Bank,
N.A., MSBNA) baa1 BCA. The upgrade of E*TRADE
Bank's adjusted BCA to a3 from baa1 incorporates one notch of uplift
for affiliate support in line with the one notch uplift incorporated into
the a3 adjusted BCA of MSBNA. Moody's said that as a commonly controlled
Federal Deposit Insurance Corporation (FDIC)-insured depository
institution, it considers E*TRADE Bank's credit profile
to be aligned with Morgan Stanley's FDIC-insured US banks and accordingly
it has the same ratings profile. This reflects the likely benefits
to the bank's creditors stemming from the cross-indemnification
provisions of the Federal Deposit Insurance Act, as well as Moody's
expectation that E*TRADE Bank would benefit from the bail-in
of Morgan Stanley holding company debt in the event of MS's failure
to the same extent as Morgan Stanley's other US bank subsidiaries.
Moody's said the upgrade of E*TRADE's senior unsecured notes
to A3 from Baa2 reflects the benefits to E*TRADE's credit profile
from being owned by Morgan Stanley. At A3, the rating is
in in line with the bank's adjusted BCA of a3. There is no
further uplift in E*TRADE's senior unsecured notes' rating
because it is uncertain whether or not E*TRADE will be designated
as a material operating entity in Morgan Stanley's resolution plan
and whether the instruments would benefit from the bail-in of Morgan
Stanley's debt in a resolution. Given this uncertainty,
the notes' A3 rating reflects Moody's expectation for a normal
severity of loss.
Concurrent with the completion of the transaction, E*TRADE's
outstanding $700 million preferred stock was cancelled and holders
received in exchange newly created Morgan Stanley preferred stock.
Accordingly, Moody's withdrew its ratings of E*TRADE preferred
shares. Moody's also withdrew E*TRADE's issuer
rating and provisional ratings for E*TRADE's shelf registration
because Moody's expects E*TRADE's shelf registration to
become ineffective.
E*TRADE's and E*TRADE Bank's outlooks are stable,
consistent with Morgan Stanley's stable outlook and reflecting Moody's
expectation that MS will retain a strong liquidity profile, maintain
its improved funding profile, may suffer a temporary dip in profitability
during the coronavirus crisis, and will over time return increasing
amounts of capital and moderately reduce its regulatory capital ratios
once the current temporary regulatory restrictions on capital payouts
for the largest US banks are lifted.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
E*TRADE and E*TRADE Bank's ratings could be upgraded should
there be an improvement in MS's BCA and an upgrade of its support-provider
Mitsubishi UFJ Financial Group, Inc. (MUFG). MS's
BCA could be improved should it drive and sustain a fundamental shift
in business mix towards lower-risk, recurring revenue streams
with a continued trend of improved and more stable profitability,
accompanied by the maintenance of robust capital and liquidity.
E*TRADE and E*TRADE Bank ratings could be downgraded with evidence
of a prolonged weakening of results at MS, a significant deterioration
in MS's loan credit quality or loan underwriting standards,
an increase in MS's portfolio concentrations, a deterioration
in MS's liquidity profile, a general increase in MS's
risk appetite, or if there is evidence of a significant controls,
risk management or governance failure that is not promptly identified
and fully remediated. Also, the ratings would likely be downgraded
should MS's support-provider MUFG be downgraded, or
should there be a weakening in MS's and MUFG's operational
and strategic relationship.
Upgrades:
..Issuer: E*TRADE Financial Corp.
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A3 from Baa2
..Issuer: E*TRADE Bank
....Adjusted Baseline Credit Assessment,
Upgraded to a3 from baa1
....LT Counterparty Risk Assessment,
Upgraded to Aa2(cr) from A3(cr)
....ST Counterparty Risk Assessment,
Upgraded to P-1(cr) from P-2(cr)
....LT Counterparty Risk Rating (Local Currency),
Upgraded to Aa2 from Baa1
....LT Counterparty Risk Rating (Foreign Currency),
Upgraded to Aa2 from Baa1
....ST Counterparty Risk Rating (Local Currency),
Upgraded to P-1 from P-2
....ST Counterparty Risk Rating (Foreign Currency),
Upgraded to P-1 from P-2
....LT Issuer Rating, Upgraded to Aa3
from Baa2, Stable from Rating Under Review
....LT Bank Deposits, Upgraded to Aa3
from A2, Stable from Rating Under Review
Affirmations:
..Issuer: E*TRADE Bank
.... Baseline Credit Assessment, Affirmed
baa1
....ST Bank Deposits, Affirmed P-1
Withdrawals:
..Issuer: E*TRADE Financial Corp.
....LT Issuer Rating, Withdrawn ,
previously rated Baa2
....Pref. Shelf, Withdrawn ,
previously rated (P)Ba1
....Pref. Shelf Non-cumulative,
Withdrawn , previously rated (P)Ba2
....Subordinate Shelf, Withdrawn ,
previously rated (P)Baa3
....Senior Unsecured Shelf, Withdrawn
, previously rated (P)Baa2
....Pref. Stock Non-cumulative,
Withdrawn , previously rated Ba2 (hyb)
Outlook Actions:
..Issuer: E*TRADE Financial Corp.
....Outlook, Changed To Stable From
Rating Under Review
Outlook Actions:
..Issuer: E*TRADE Bank
....Outlook, Changed To Stable From
Rating Under Review
The principal methodology used in rating E*TRADE Financial Corp.
was Securities Industry Service Providers Methodology published in November
2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187116.
The principal methodology used in rating E*TRADE Bank was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Fadi Abdel Massih
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
