Investment Banking

Moody’s Upgrades Ratings for Some Big Banks

Morgan Stanley is among the beneficiaries of a new methodology that rewards higher volumes of senior debt.
Katie Kuehner-HebertMay 29, 2015

Moody’s Investors Service has upgraded a number of investment banks’ ratings, affirmed the ratings of others and cut some, partly reflecting changes in its methodology that reward higher volumes of senior debt and enable banks to impose losses on junior creditors.

Most notably, Moody’s upgraded the BCAs of three Morgan Stanley entities to baa2 from baa3 and their adjusted BCAs to baa1 from baa2.

The upgrades reflect, among other things, the firm’s “increased business diversification and prospects for improved profitability and lower earnings volatility,” Moody’s said in a news release.

“They have taken a slow and steady approach to profitability improvements,” Moody’s analyst David Fanger told Bloomberg. “We had previously some concerns that they would be under pressure to take additional risks, but the shareholders have rewarded the business diversification.”

Bank of America, Citigroup and Goldman Sachs had their holding-company grades boosted one level, while Barclays, HSBC, Credit Suisse, and Royal Bank of Scotland had their holding-company ratings cut, Moody’s said.

Moody’s change in methodology was prompted in part by rules that global regulators have been enacting to aid struggling banks in a crisis or resolve those that fail, according to Bloomberg.

In many cases, senior bondholders are better protected because the firms have thicker layers of junior securities to bear the brunt of losses, Moody’s analysts said in announcing the change in March.