New York, October 02, 2020 -- Moody's Investors Service (Moody's) has upgraded Morgan Stanley's (MS)
long- and short-term ratings to A2 (senior unsecured)/Prime-1
from A3 (senior unsecured)/Prime-2. Moody's has also
upgraded by one notch the long-term ratings and assessments of
MS's principal US bank subsidiary, Morgan Stanley Bank,
N.A. (MSBNA), including its deposit rating to Aa3
from A1, baseline credit assessment (BCA) to baa1 from baa2,
and adjusted BCA to a3 from baa1, as well as the long-term
ratings and assessments of MS's other rated subsidiaries:
Morgan Stanley Private Bank, N.A. (MSPBNA, Aa3
deposits), Morgan Stanley Bank AG (MSBAG, Aa3 deposits),
Morgan Stanley Bank International Limited (MSBIL, Aa3 deposits),
Morgan Stanley Europe SE (MSESE, Aa3 issuer), Morgan Stanley
Capital Group Inc. (MSCGI, Aa3 issuer), Morgan Stanley
Capital Services LLC (MSCS, Aa3 issuer), Morgan Stanley &
Co. International plc (MSIP, Aa3 issuer), and Morgan
Stanley Finance LLC (MSFL, A2 issuer). Moody's also
affirmed the Prime-1 short-term ratings and Prime-1(cr)
short-term assessments assigned to MS's rated subsidiaries.
Moody's said the outlooks are stable.
The rating actions followed MS's announcement[1] that it has
completed the acquisition of E*TRADE Financial Corp. (E*TRADE,
A3 stable), and concludes the review for upgrade which began on
21 February 2020, upon MS's announcement that it intended
to acquire E*TRADE.
A complete list of affected ratings and entities can be found at the end
of this press release.
RATINGS RATIONALE
"The acquisition of E*TRADE is another deliberative step in
MS's clear and consistent strategy to shift its business mix towards
generating recurring, profitable revenue-streams in wealth
and investment management. These revenue-streams are generally
more stable and of lower risk than the activities and exposures in MS's
institutional securities' business segment," said Donald
Robertson, Moody's Senior Vice President. Following
the integration of E*TRADE into MS's wealth management business,
MS's wealth and investment management segments will comprise approximately
57% of MS's total pretax income on a simple proforma basis
(excluding potential acquisition-related synergies) compared with
51% in 2019. Future bolt-on acquisitions are more
likely to occur in these segments rather than institutional securities,
and this would further tilt MS's business mix toward lower-risk
and more stable recurring earnings streams, said Moody's.
Despite the acquisition's inherent execution risks, Moody's
expects MS to carefully manage the integration of the two companies and
their cultures. Moody's said there are significant business
development opportunities available to MS in connecting the two firms'
complementary products and services in MS's wealth management,
E*TRADE's self-directed retail investing and both firms'
workplace stock plan management businesses. MS has identified specific
cost and funding synergies that are achievable incrementally over several
years, and MS's funding profile has improved by adding E*TRADE's
clients' deposits, said Moody's.
Moody's said MS's business mix has been more resilient than
most global investment bank peers to the coronavirus pandemic's
adverse economic implications. "Despite having materially
increased its allowance for credit losses in the first half of 2020,
MS is benefiting from not having exposures to unsecured consumer credit,
a major factor driving downward pressure on most peers' profitability
and asset quality," said Robertson. Although MS's
short-term profitability will remain pressured by the current environment,
and there are inherent pockets of risk in MS's institutional securities'
lending, Moody's said MS does not appear to have extensive
concentrations in higher-risk activities or sectors that would
be more likely to significantly impair its results in the event of a prolonged
downturn, evidencing an effective risk management and controls'
framework. In concluding that MS's creditworthiness has improved,
Moody's also cited MS's strong regulatory capital base,
its leading investment banking and equity capital markets' franchises,
and its maintenance of a controlled risk appetite in its fixed income
sales and trading business following the restructuring of this division
several years ago.
Moody's said MS continues to derive substantial strategic and operational
benefits from its long-standing relationship with Mitsubishi UFJ
Financial Group, Inc. (MUFG, A1 senior with stable
outlook, a3 BCA at MUFG Bank, Ltd.), its largest
shareholder, with about a 24% common ownership interest.
MS's A2 senior unsecured debt and issuer ratings are derived from
its lead bank's (MSBNA) baa1 BCA and a notch of affiliate support from
MUFG, resulting in an a3 Adjusted BCA.
Moody's Advanced Loss Given Failure (LGF) analysis results in a further
notch of uplift to arrive at the holding company's A2 senior unsecured
debt rating, reflecting the reduced severity of loss Moody's
expects senior debt holders would benefit from in the event of MS's
failure owing to the substantial amount of holding company senior debt
outstanding as well as the amount of debt subordinated to it. MS'
bank and market-making subsidiaries' Aa3 deposit and issuer
ratings benefit from three notches of uplift in Moody's Advanced LGF analysis,
because these obligations are likely to face extremely low loss-given-failure
due to the loss absorption provided by holding company obligations.
There is a further notch of US government uplift in relevant subsidiaries'
Aa2 counterparty risk ratings and Aa2(cr) counterparty risk assessments,
reflecting Moody's view that MS's systemic importance primarily derives
from its high degree of interconnectedness with other global systemically
important banks and its role as a significant derivatives counterparty.
MS's Baa1 subordinated holding company debt and Baa3 (hyb) non-cumulative
preferred stock ratings reflect the juniority of these obligations,
with a high loss-given-failure, given the small volume
of securities outstanding and the limited protection from more subordinated
instruments and residual equity. Moody's has assigned Baa3
(hyb) ratings to MS's Series M and Series N fixed-to-floating
rate non-cumulative preferred stock, that MS issued to E*TRADE's
preferred stockholders in exchange for E*TRADE's preferred stock
(which was cancelled), pursuant to the acquisition agreement.
MS and its rated subsidiaries' stable outlooks reflect 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
MS's and its rated subsidiaries' long-term ratings could
be upgraded should there be an improvement in MS's BCA and an upgrade
of support-provider 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.
An improvement in MS's BCA without an improvement in the creditworthiness
of MUFG is less likely to result in MS's ratings being upgraded.
Were MS's BCA to be upgraded by one notch, its BCA would be
at the same level as MUFG's lead bank's BCA, at which
point it would be unlikely that MS's ratings would continue to benefit
from a notch of affiliate support under Moody's joint default analysis,
and accordingly MS's Adjusted BCA would remain unchanged.
The ratings could be downgraded with evidence of a prolonged weakening
of results, a significant deterioration in loan credit quality or
loan underwriting standards, an increase in portfolio concentrations,
a deterioration in the firm's liquidity profile, a general increase
in 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, MS's ratings would likely
be downgraded should support-provider MUFG be downgraded,
or should there be a weakening in MS's and MUFG's operational
and strategic relationship.
LIST OF AFFECTED RATINGS
Issuer: Morgan Stanley
Upgrades:
....LT Issuer Rating, Upgraded to A2
from A3, Stable from Rating Under Review
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Upgraded to A2 from A3, Stable from Rating
Under Review
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Upgraded to A2 from A3, Stable from Rating
Under Review
....Senior Unsecured Shelf, Upgraded
to (P)A2 from (P)A3
....Senior Unsecured Medium-Term Note
Program (Local Currency), Upgraded to (P)A2 from (P)A3
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Upgraded to (P)A2 from (P)A3
....Subordinate Regular Bond/Debenture,
Upgraded to Baa1 from Baa2
....Subordinate Shelf, Upgraded to (P)Baa1
from (P)Baa2
....Subordinate Medium-Term Note Program
(Foreign Currency), Upgraded (P)Baa1 from (P)Baa2
....Pref. Stock Non-Cumulative,
Upgraded to Baa3(hyb) from Ba1(hyb)
....Pref. Shelf Non-Cumulative,
Upgraded to (P)Baa3 from (P)Ba1
....Commercial Paper, Upgraded to P-1
from P-2
....Backed Commercial Paper (Foreign Currency),
Upgraded to P-1 from P-2
....Other Short Term, Upgraded to (P)P-1
from (P)P-2
Assignments:
....Pref. Stock Non-Cumulative
Series M, Assigned Baa3(hyb)
....Pref. Stock Non-Cumulative
Series N, Assigned Baa3(hyb)
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
Issuer: Morgan Stanley Bank, N.A.
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to a3 from baa1
....Baseline Credit Assessment, Upgraded
to baa1 from baa2
....LT Issuer Rating, Upgraded to Aa3
from A1, Stable from Rating Under Review
....LT Counterparty Risk Assessment,
Upgraded to Aa2(cr) from Aa3(cr)
....LT Counterparty Risk Rating (Local Currency),
Upgraded to Aa2 from Aa3
....LT Counterparty Risk Rating (Foreign Currency),
Upgraded to Aa2 from Aa3
....LT Deposit Note/CD Program, Upgraded
to Aa3 from A1, Stable from Rating Under Review
....LT Bank Deposits, Upgraded to Aa3
from A1, Stable from Rating Under Review
Affirmations:
....ST Issuer Rating, Affirmed P-1
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....ST Bank Deposits, Affirmed P-1
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
Issuer: Morgan Stanley & Co. International plc
Upgrades:
....LT Issuer Rating (Foreign Currency),
Upgraded to Aa3 from A1
....LT Counterparty Risk Assessment,
Upgraded to Aa2(cr) from Aa3(cr)
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Upgraded to Aa3 from A1
....Senior Secured Regular Bond/Debenture
(Foreign Currency), Upgraded to Aa3 from A1
....Senior Secured Medium-Term Note
Program (Foreign Currency), Upgraded to (P)Aa3 from (P)A1
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Upgraded to (P)Aa3 from (P)A1
....Backed Senior Unsecured Medium-Term
Note Program (Foreign Currency), Upgraded to (P)Aa3 from (P)A1
Affirmations:
....ST Issuer Rating (Foreign Currency),
Affirmed P-1
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....Other Short Term (Foreign Currency),
Affirmed (P)P-1
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
Issuer: Morgan Stanley Bank International Limited
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to a3 from baa1
....Baseline Credit Assessment, Upgraded
to baa1 from baa2
....LT Issuer Rating (Foreign Currency),
Upgraded to Aa3 from A1, Stable from Rating Under Review
....LT Counterparty Risk Assessment,
Upgraded to Aa2(cr) from Aa3(cr)
....LT Counterparty Risk Rating (Local Currency),
Upgraded to Aa2 from Aa3
....LT Counterparty Risk Rating (Foreign Currency),
Upgraded to Aa2 from Aa3
....LT Bank Deposits (Foreign Currency),
Upgraded to Aa3 from A1, Stable from Rating Under Review
Affirmations:
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....ST Bank Deposits (Foreign Currency),
Affirmed P-1
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
Issuer: Morgan Stanley Capital Group Inc.
Upgrades:
....LT Issuer Rating, Upgraded to Aa3
from A1
....LT Counterparty Risk Assessment,
Upgraded to Aa2(cr) from Aa3(cr)
Affirmations:
....ST Issuer Rating, Affirmed P-1
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
Issuer: Morgan Stanley Capital Services LLC
Upgrades:
....LT Issuer Rating, Upgraded to Aa3
from A1
....LT Counterparty Risk Assessment,
Upgraded to Aa2(cr) from Aa3(cr)
Affirmations:
....ST Issuer Rating, Affirmed P-1
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
Issuer: Morgan Stanley Europe SE
Upgrades:
....LT Issuer Rating, Upgraded to Aa3
from A1
....LT Counterparty Risk Assessment,
Upgraded to Aa2(cr) from Aa3(cr)
Affirmations:
....ST Issuer Rating, Affirmed P-1
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
Issuer: Morgan Stanley Bank AG
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to a3 from baa1
....Baseline Credit Assessment, Upgraded
to baa1 from baa2
....LT Counterparty Risk Assessment,
Upgraded to Aa2(cr) from Aa3(cr)
....LT Counterparty Risk Rating (Local Currency),
Upgraded to Aa2 from Aa3
....LT Counterparty Risk Rating (Foreign Currency),
Upgraded to Aa2 from Aa3
....LT Issuer Rating, Upgraded to Aa3
from A1, Stable from Rating Under Review
....LT Bank Deposits, Upgraded to Aa3
from A1, Stable from Rating Under Review
Affirmations:
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....ST Bank Deposits, Affirmed P-1
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
Issuer: Morgan Stanley Finance LLC
Upgrades:
....Backed LT Issuer Rating, Upgraded
to A2 from A3, Stable from Rating Under Review
....Backed Senior Unsecured Regular Bond/Debenture
(Local Currency), Upgraded to A2 from A3, Stable from Rating
Under Review
....Backed Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Upgraded to A2 from A3, Stable from Rating
Under Review
....Backed Senior Unsecured Shelf, Upgraded
to (P)A2 from (P)A3
....Backed Senior Unsecured Medium-Term
Note Program, Upgraded to (P)A2 from (P)A3
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
Issuer: Morgan Stanley Private Bank, N.A.
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to a3 from baa1
....Baseline Credit Assessment, Upgraded
to baa1 from baa2
....LT Counterparty Risk Assessment,
Upgraded to Aa2(cr) from Aa3(cr)
....LT Counterparty Risk Rating (Local Currency),
Upgraded to Aa2 from Aa3
....LT Counterparty Risk Rating (Foreign Currency),
Upgraded to Aa2 from Aa3
....LT Issuer Rating, Upgraded to Aa3
from A1, Stable from Rating Under Review
....LT Bank Deposits, Upgraded to Aa3
from A1, Stable from Rating Under Review
Affirmations:
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....ST Issuer Rating, Affirmed P-1
....ST Bank Deposits, Affirmed P-1
..Outlook Actions:
....Outlook, Changed to Stable from
Rating Under Review
The principal methodology used in rating Morgan Stanley, Morgan
Stanley Bank, N.A., Morgan Stanley Private Bank,
N.A., Morgan Stanley Bank International Limited,
Morgan Stanley Bank AG and Morgan Stanley Finance LLC was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
The principal methodologies used in rating Morgan Stanley & Co.
International plc, Morgan Stanley Europe SE, Morgan Stanley
Capital Services LLC and Morgan Stanley Capital Group Inc. were
Securities Industry Market Makers Methodology published in November 2019
and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187332,
and 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.
REFERENCES/CITATIONS
[1] Form 8-K (SEC) 02-Oct-2020
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.
Donald Robertson
Senior Vice President
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
