Investment banking giant Morgan Stanley was forced to post an additional $2.9 billion of collateral as a result of its downgrade by rating agency Moody’s this June.That is lower than earlier estimates the company made, that pegged the figure at $3.43 billion.
“As a result of a rating agency downgrade of the Firm’s long-term credit rating in June, the amount of additional collateral requirements or other payments that could be called by counterparties, exchanges or clearing organisations under the terms of certain OTC trading agreements and certain other agreements was approximately $6.3 billion, of which $2.9 billion was called and posted at June 30, 2012,” the firm said in a statement.
Morgan could have been forced to post a far higher sum had Moody’s cut its rating by as much as three notches, as it warned it could when it began reviewing U.S., U.K., and Canadian banks for downgrade.
A three notch downgrade could have forced Morgan to post more than $9.5 billion in collateral.
However, the ratings firm ultimately only lowered Morgan Stanley two levels, to Baa1. The firm benefited from the financial support of Mitsubishi UFJ Financial Group, its largest shareholder.
“Morgan Stanley’s ratings benefit from three notches of uplift due to external support assumptions. This includes one notch of uplift from its largest shareholder, Mitsubishi UFJ Financial Group,” Moody’s said at the end of June.