(Bloomberg News) Morgan Stanley sees a potential three-level credit-rating downgrade from Moody's Investors Service as manageable, Chief Financial Officer Ruth Porat said.
"We've done a lot to narrow the impact of any potential ratings change," Porat said in an interview today. "Our view is that the potential outcomes are manageable, and I think our clients understand that."
Morgan Stanley faces what would be the largest credit-rating cut among U.S. banks, which may force the firm to post more collateral on derivatives trades and pay more to borrow. Moody's said it will take ratings actions on the largest global investment banks by the end of June.
Morgan Stanley has cut back its structured derivatives business, which would be most affected by a downgrade, Porat said. The firm has also moved more derivatives to central clearinghouses, as will probably be required by regulations stemming from the Dodd-Frank Act, and has a higher-rated subsidiary it could use for some trades, Porat, 54, said.
"We've reduced the universe of relevant parts of the business or positions that would be affected by any kind of a change," she said.
The firm's clients also don't rely solely on Moody's, Porat said. Morgan Stanley is rated A- by Standard & Poor's and A by Fitch Ratings.
"A lot of clients are doing their own credit work," Porat said.