Downgrades of Morgan Stanley, Credit Suisse Group AG and 13 other global banks, announced by Moody’s Investors Service after months of speculation about dire fallout, were met instead by rallies in stocks and bonds.
The cost to protect Morgan Stanley’s debt against losses dropped, and the shares rallied as much as 4.6 percent in extended trading yesterday after the ratings firm cut the bank by two levels rather than a threatened three grades. Credit-default swaps tied to Bank of America Corp., which was lowered to within two levels of junk along with Citigroup Inc., also improved, along with those of Goldman Sachs Group Inc.
“All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities,” Greg Bauer, Moody’s global banking managing director, said in the statement.
Goldman Sachs’s $4.25 billion in senior unsecured debt that matures in January 2022 yields 5.19 percent, or 362 basis points more than similar-maturity U.S. government debt, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Citigroup and Bank of America, as the lowest-graded firms after Nomura, may be at a disadvantage in businesses such as trading derivatives that aren’t centrally cleared. That market provides about 15 percent of the industry’s trading revenue, Kinner Lakhani, a Citigroup analyst, wrote in an April 30 note. Both firms lost market share among the top nine banks in fixed- income trading last year, according to Bloomberg Industries.