NEW YORK (Thomson Financial) - Shares of financial companies slumped Friday
afternoon after Moody's Investors Service put Morgan Stanley's credit on review
for downgrade.
The SPDR FD Financial ETF (XLF) shed 2%, or 40 cents, to $20.49 after the
report. Shares of New York-based Morgan Stanley hit a three-month low of $36.07
before paring losses to trade down 0.2% at $36.57.
Moody's said it put Morgan Stanley's Aa3 long-term senior unsecured debt
rating on review for a possible downgrade. The Prime-1 short-term rating was
affirmed.
The "more likely outcome" of the review is a 1-notch downgrade to A1,
Moody's said.
"Markets have clearly been challenging, but the firm has also incurred some
expensive trading mishaps during the past year," said Moody's senior vice
president Peter Nerby.
Moody's acknowledged that Morgan Stanley was making changes to how it
manages risk, but said it was "premature" to think that the changes will be
effective.
The firm will focus its review on Morgan's ability to control risk and boost
profitability over the next year or two. Of particular concern are the company's
"risky concentrations" in commercial real estate and single-name leveraged
loans, Moody's said.
Morgan Stanley must contain those losses within the business area's revenue
capacity in order to avoid a downgrade, Moody's said.
Among Morgan Stanley's brokerage peers, shares of Lehman Brothers slid 3%,
or 71 cents, to $21.90 and Goldman Sachs Group Inc. recently fell 1% to $174.78.
Merrill Lynch & Co. lost 1% to $32.71. Earlier, the broker hit $32.11,
marking a new five-year low.
With the banking sector, Citigroup Inc., a component of the Dow industrials,
tumbled 3% to $17.19, after reaching $16.91 -- their lowest level since Oct.
1998.
Fellow Dow member J.P. Morgan Chase & Co. slid 4% to $34.96. The stock
earlier fell to $34.20, a three-year low.
Also in the Dow, Bank of America lost 0.4% to $24.72.
Michelle Rama
mr/mr/tk1
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