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Morgan Stanley Ratings Affirmed by Moody's, Outlook Upgraded
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Morgan Stanley’s (MS - Free Report) issuer as well as senior unsecured debt ratings has been affirmed at A3 by Moody's Investors Service, the rating arm of Moody's Corporation (MCO - Free Report) . The rating agency has also affirmed the ratings of all of Morgan Stanley’s subsidiaries.
Further, the rating outlook for the firm and its subsidiaries has been upgraded to positive from stable.
Per Moody’s, Morgan Stanley has been consistently adhering to strategic financial objectives and goals over the past several years, which has supported its strong credit profile.
The company has been able to maintain its competitive position among peers that lead the global capital markets. It has taken several initiatives to restructure its operations with a goal to lower balance-sheet risks and focus on segments — Wealth Management (“WM”) and Investment Management (“IM”) — that are less dependent on capital markets.
Driven by these efforts, the WM segment’s contribution to total net income increased from 34% in 2015 to 40% in 2018. In fact, the firm’s total profitability has also improved, supported by these initiatives.
Moody’s also mentioned that with the help of solid structural and comprehensive liquidity management, Morgan Stanley has been able to offset the challenges that its heavy reliance on market funding poses.
Further, the firm maintains a solid capital position in comparison with its peers. Also, since the financial crisis, Morgan Stanley has been continuously engaging in cost management. While expenses are expected to flare up in the near term due to the company’s continued investments in franchise, it achieved its cost saving target of $1 billion in 2017 with the help of its restructuring and streamlining efforts.
Thus, the above-mentioned positives formed the basis behind the ratings affirmation by Moody’s.
However, Moody’s noted that Morgan Stanley has a complex legal structure, and its global footprint and extensive capital market activities increases management and governance challenges. In fact, the firm’s baseline credit assessment (“BCA”) rating incorporates one-notch of downward adjustment to reflect the credit risk that is associated with the opacity and complexity of its global operations.
Nevertheless, since the financial crisis, the firm’s governance frameworks and related controls and processes have materially improved, per Moody’s.
Notably, Moody's upgraded the ratings outlook to positive, in a bid to reflect Morgan Stanley’s stellar financial performance, which includes the improvement in profitability, and its solid capital and liquidity positions.
What Can Lead to a Rating Upgrade?
Morgan Stanley's ratings will be upgraded if the company is able to maintain its trend of improving the quality and stability of its profitability, along with maintaining a solid capital and liquidity position. Moreover, if the firm can demonstrate strong risk management controls in Institutional Securities' lending and improved results in regulatory stress testing, there is a possibility that its ratings could be upgraded.
What Can Trigger a Ratings Downgrade?
A rating downgraded can take place if there is significant deterioration in loan credit quality or loan underwriting standards, or if there is an increase in portfolio concentrations, and deterioration in Morgan Stanley’s liquidity profile.
Shares of Morgan Stanley have gained 24.7% so far this year compared with 17.4% growth recorded by the industry it belongs to.
Notably, in November 2019, SLM Corporation’s (SLM - Free Report) long-term senior unsecured rating witnessed an upgrade from Ba2 to Ba1 by the Moody's. The rating agency also affirmed the ratings of First Horizon National Corporation (FHN - Free Report) and its bank subsidiary, First Horizon Bank.
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Morgan Stanley Ratings Affirmed by Moody's, Outlook Upgraded
Morgan Stanley’s (MS - Free Report) issuer as well as senior unsecured debt ratings has been affirmed at A3 by Moody's Investors Service, the rating arm of Moody's Corporation (MCO - Free Report) . The rating agency has also affirmed the ratings of all of Morgan Stanley’s subsidiaries.
Further, the rating outlook for the firm and its subsidiaries has been upgraded to positive from stable.
Per Moody’s, Morgan Stanley has been consistently adhering to strategic financial objectives and goals over the past several years, which has supported its strong credit profile.
The company has been able to maintain its competitive position among peers that lead the global capital markets. It has taken several initiatives to restructure its operations with a goal to lower balance-sheet risks and focus on segments — Wealth Management (“WM”) and Investment Management (“IM”) — that are less dependent on capital markets.
Driven by these efforts, the WM segment’s contribution to total net income increased from 34% in 2015 to 40% in 2018. In fact, the firm’s total profitability has also improved, supported by these initiatives.
Moody’s also mentioned that with the help of solid structural and comprehensive liquidity management, Morgan Stanley has been able to offset the challenges that its heavy reliance on market funding poses.
Further, the firm maintains a solid capital position in comparison with its peers. Also, since the financial crisis, Morgan Stanley has been continuously engaging in cost management. While expenses are expected to flare up in the near term due to the company’s continued investments in franchise, it achieved its cost saving target of $1 billion in 2017 with the help of its restructuring and streamlining efforts.
Thus, the above-mentioned positives formed the basis behind the ratings affirmation by Moody’s.
However, Moody’s noted that Morgan Stanley has a complex legal structure, and its global footprint and extensive capital market activities increases management and governance challenges. In fact, the firm’s baseline credit assessment (“BCA”) rating incorporates one-notch of downward adjustment to reflect the credit risk that is associated with the opacity and complexity of its global operations.
Nevertheless, since the financial crisis, the firm’s governance frameworks and related controls and processes have materially improved, per Moody’s.
Notably, Moody's upgraded the ratings outlook to positive, in a bid to reflect Morgan Stanley’s stellar financial performance, which includes the improvement in profitability, and its solid capital and liquidity positions.
What Can Lead to a Rating Upgrade?
Morgan Stanley's ratings will be upgraded if the company is able to maintain its trend of improving the quality and stability of its profitability, along with maintaining a solid capital and liquidity position. Moreover, if the firm can demonstrate strong risk management controls in Institutional Securities' lending and improved results in regulatory stress testing, there is a possibility that its ratings could be upgraded.
What Can Trigger a Ratings Downgrade?
A rating downgraded can take place if there is significant deterioration in loan credit quality or loan underwriting standards, or if there is an increase in portfolio concentrations, and deterioration in Morgan Stanley’s liquidity profile.
Shares of Morgan Stanley have gained 24.7% so far this year compared with 17.4% growth recorded by the industry it belongs to.
Currently, the stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, in November 2019, SLM Corporation’s (SLM - Free Report) long-term senior unsecured rating witnessed an upgrade from Ba2 to Ba1 by the Moody's. The rating agency also affirmed the ratings of First Horizon National Corporation (FHN - Free Report) and its bank subsidiary, First Horizon Bank.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>