Moody's cuts Morgan Stanley

Moody's Investors Service said it downgraded Morgan Stanley's senior debt rating to A2 from A1 and affirmed short-term ratings at Prime-1.

The outlook is negative. This concludes the review that began on Oct. 9.

The downgrade of Morgan Stanley's senior debt to A2 reflects increased vulnerabilities that the ongoing credit market crisis has exposed in the model of Morgan Stanley and other wholesale-funded investment, commercial and universal banks, the agency said.

The downgrade also reflects the firm's weak fourth quarter and full-year results, which indicate erosion in certain important Morgan Stanley franchises that had previously underpinned the ratings; the likelihood of increased structural subordination for Morgan Stanley creditors relative to its bank-level creditors; and a persistent difficult operating environment that will continue to challenge the firm, the agency added.

Tempering these issues is potential systemic support, Moody's said.

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