Bank of America, Citi and Morgan Stanley Face Downgrade Hit

NEW YORK (TheStreet) — Bank of America Citigroup and Morgan Stanley would be hardest-hit by a downgrade from Moody’s Investors Service, according to a report from Evercore published late Wednesday.

Moody’s is expected to complete its ratings reviews for firms with global capital markets operations in June, and much of the potential damage is believed to be priced into stocks. There may even be potential for a less severe downgrade than expected argues Wells Fargo analyst Matt Burnell.

However, assuming the downgrades are “within announced guidelines” Bank of America, Citigroup and Morgan Stanley “would be only two notches above junk from a Moody’s perspective,” according to Evercore analyst Andrew Marquardt. That would be damaging to earnings as banks would have to post additional collateral and face higher funding costs. But the “real question,” is the impact to client relationships as trading counterparties who would likely move their business to higher-rated companies, Marquardt writes. He cautions the effect from such activity is “difficult to quantify.” …

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