Morgan Stanley details effect of possible downgrade

Morgan Stanley said it will have to post another USD 6.52 billion in collateral to counterparties and clearinghouses if Moody's follows through on a warning that it might cut the Wall Street bank's long-term debt rating by up to three notches.

A one-notch downgrade by Moody's would require USD 1.04 billion in additional collateral, and a two-notch downgrade would require USD 5.17 billion in additional collateral, Morgan Stanley said in its annual filing with the US Securities and Exchange Commission on Monday.

Those figures are higher than the USD 1.69 billion and USD 5.15 billion Morgan Stanley said it would have to post in the event of a one-notch or two-notch downgrade in its annual filing a year ago. It did not provide an estimate for a three-notch downgrade at that time.

Morgan Stanley currently has a "split" rating among the primary ratings agencies. Moody's rates its long-term debt at A2, one notch above S&P's A- rating, but at the same level as Fitch's A rating.

Moody's warned February 16 that it might downgrade Morgan Stanley by as much as three notches following a reassessment of large financial institutions.

Morgan Stanley also said it lost money in trading during 49 days last year, up from 38 days in 2010.

Despite more money-losing days, the Wall Street bank's sales and trading revenue rose 25.7% last year to USD 12.9 billion, up from USD 10.3 billion in 2010. Morgan Stanley brought in more than USD 100 million in trading revenue in 26 days last year, up slightly from 25 days in 2010.