Moody’s Investors Service has adjusted the systemic support assumptions of certain highly integrated foreign banking subsidiaries of The Goldman Sachs Group, Inc. (rated A1 for senior debt with a negative outlook) and Morgan Stanley (rated A2 for senior debt with a negative outlook). This resulted in the following rating changes:
. Long-term Debt and Deposit Ratings at Goldman Sachs Bank (Europe) PLC downgraded to A1 from Aa3, still with a negative outlook.
. Long-term Debt and Deposit Ratings at Morgan Stanley Bank International Limited downgraded to A2 from A1, still with a negative outlook.
. Long-term Debt and Deposit Ratings at Morgan Stanley Bank AG downgraded to A2 from A1, still with a negative outlook.
The rating action reflects Moody’s re-assessment of the extent to which the above referenced non-US bank subsidiaries might benefit from systemic support provided by the US government to their respective parents or US bank affiliates. Moody’s considers each of these non-US banks to be highly integrated with their respective parents. As such, each of the banks has the same bank financial strength rating (BFSR) as its US bank affiliate, and the BFSR of each of the banks remains unchanged. We also believe that each is very likely to be supported by its parent, and this belief was reflected in the last rating action for each of these banks in December 2008, when their ratings were confirmed. However, in most cases when incorporating parental support into bank ratings, Moody’s uses the parent’s stand-alone rating — that is, the rating without benefit of any systemic support – to determine the parent’s ability to support its foreign bank subsidiaries, unless a case can be made that systemic support for the parent and its US bank subsidiaries would be extended to the foreign subsidiary as well.
Given the highly integrated nature of these foreign banking operations, as well as the current banking resolution framework in the US, Moody’s believes that these foreign bank subsidiaries could indirectly benefit to some extent from systemic support provided to their parents. However, today’s rating action reflects Moody’s current view that such indirect support might be limited, providing less benefit to the creditors of the foreign bank subsidiaries than to the creditors of the US bank subsidiaries. In the case of Morgan Stanley, the deposit and issuer ratings of its US bank subsidiary benefit from two notches of uplift from the BFSR of C (baseline credit assessment of A3), whereas the reduced level of systemic support assumed for Morgan Stanley’s foreign bank subsidiaries results in only one-notch of uplift from their BFSRs. By contrast, at Goldman Sachs, the deposit and issuer ratings of Goldman Sachs Bank USA benefits from one notch of uplift from its BFSR of B- (baseline credit assessment of A1), whereas the reduced level of systemic support assumed for Goldman Sachs Bank Europe results in no uplift from its BFSR.
The rating agency noted that the higher level of uplift at Morgan Stanley relative to Goldman Sachs does not reflect a higher support assumption, but instead reflects the lower stand-alone ratings of Morgan Stanley.
Moody’s last rating action for Goldman Sachs Bank Europe PLC occurred on December 16, 2008 when its ratings were affirmed at Aa3 and the outlook remained at negative.
Moody’s last rating action for Morgan Stanley Bank International and Morgan Stanley Bank AG was on December 17, 2008 when their ratings were confirmed at A1 and the outlook was changed to negative.
D.C.