Morgan Stanley 2014 Annual Report Download - page 108

Some rating agencies have stated that they currently incorporate various degrees of credit rating uplift from
external sources of potential support, as well as perceived government support of systemically important banks,
including the credit ratings of the Company. Rating agencies continue to monitor the progress of U.S. financial
reform legislation and regulations to assess whether the possibility of extraordinary government support for the
financial system in any future financial crises is negatively impacted. Legislative and rulemaking outcomes may
lead to reduced uplift assumptions for U.S. banks and, thereby, place downward pressure on credit ratings. At the
same time, proposed and final U.S. financial reform legislation and attendant rulemaking, such as higher
standards for capital and liquidity levels, also have positive implications for credit ratings. The net result on
credit ratings and the timing of any change in rating agency views on changes in potential government support
and financial reform efforts are currently uncertain.
At January 31, 2015, the Parent’s and Morgan Stanley Bank, N.A.’s senior unsecured ratings were as set forth
below:
Parent Morgan Stanley Bank, N.A.
Short-Term
Debt
Long-Term
Debt
Rating
Outlook
Short-Term
Debt
Long-Term
Debt
Rating
Outlook
DBRS, Inc.(1) .......................... R-1(middle) A (high) Stable — — —
Fitch Ratings, Inc. ....................... F1 A Stable F1 A Stable
Moody’s Investors Service(2) .............. P-2 Baa2 Positive P-2 A3 Positive
Rating and Investment Information, Inc. ...... a-1 A Negative — — —
Standard & Poor’s Ratings Services(3) ....... A-2 A- Negative A-1 A Stable
(1) On June 12, 2014, DBRS, Inc. confirmed the ratings for the Company, including its long-term debt rating of A (high) and short-term
instruments rating of R-1 (middle). The rating outlook trend on all long-term ratings was revised to Stable from Negative, while the
rating outlook trend on all short-term ratings remained Stable.
(2) On July 24, 2014, Moody’s Investors Service (“Moody’s”) affirmed the Company’s long-term debt rating as well as the ratings of its
subsidiaries and revised its ratings outlook to Positive from Stable.
(3) On November 26, 2014, Standard & Poor’s Ratings Services (“S&P”) revised its rating outlook on the Company’s operating subsidiaries,
including Morgan Stanley Bank, N.A. to Stable from Negative and affirmed its rating on Morgan Stanley Bank, N.A. short-term and
long-term debt of A-1 and A, respectively.
In connection with certain OTC trading agreements and certain other agreements where the Company is a
liquidity provider to certain financing vehicles associated with the Company’s Institutional Securities business
segment, the Company may be required to provide additional collateral or immediately settle any outstanding
liability balances with certain counterparties or pledge additional collateral to certain exchanges and clearing
organizations in the event of a future credit rating downgrade irrespective of whether the Company is in a net
asset or net liability position.
The additional collateral or termination payments that may be called in the event of a future credit rating
downgrade vary by contract and can be based on ratings by either or both of Moody’s and S&P. At December 31,
2014 and December 31, 2013, the future potential collateral amounts and termination payments that could be
called or required by counterparties or exchanges and clearing organizations in the event of one-notch or two-
notch downgrade scenarios, from the lowest of Moody’s or S&P ratings, based on the relevant contractual
downgrade triggers were $1,856 million and $1,522 million, respectively, and an incremental $2,984 million and
$3,321 million, respectively.
While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact
it will have on the Company’s business and results of operation in future periods is inherently uncertain and will
depend on a number of interrelated factors, including, among others, the magnitude of the downgrade, the rating
relative to peers, the rating assigned by the relevant agency pre-downgrade, individual client behavior and future
mitigating actions the Company may take. The liquidity impact of additional collateral requirements is included
in the Company’s Liquidity Stress Tests.
104