Can Goldman, JPMorgan Weather Moody’s Downgrade?
Not all financial stocks will fare equally after Moody's announcement that it would review long-term ratings of several U.S. banks, one analyst said Thursday.
A likely credit downgrade of Goldman Sachs and JP Morgan to the “weak to middle single A” range could leave the stocks in relatively good shape, Sanford Bernstein analyst Brad Hintz said on “Fast Money.”
“That’s going to be fine in the sense that they’re still going to be the best derivatives players that exist,” he said.
Not so for Morgan Stanley, which could see a three-notch downgrade. Such a move, Hintz said, could seriously impact the profitability of its fixed-income business.
Tim McCullough of Hedgeye Risk Management raised the issue of Japan as a sovereign debt issue in March.
But Hintz said the question was more about when the market would begin to believe its strategy, having struggled with its margins.
“They’re doing everything right now to try to get them moving,” he said. “But let’s face it, Morgan Stanley is running at a 9 percent pretax margin in their retail business, while Bank of America — hardly the paragon of good management — is running at about a 16 percent pretax margin.”
Hintz noted that Moody’s emphasized the fact that all the banks are interlinked.
If Europe can keep its head above water, U.S. banks will survive. But in a tail event, everyone loses, he said.
“There’s the problem with all of the large-cap banks, which is that the U.S. economy will do OK and M&A will come back and equity underwriting will come back. That works,” he said. “That works only as long as Europe doesn’t self-destruct here.”
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Trader disclosure: On Feb. 16, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Grasso is long ASTM; Grasso is long S; Grasso is long XLU; Grasso is long AVAV; Grasso is long BA; Grasso is long D; Grasso is long DIO; Grasso is long LIT; Grasso is long MHY; Grasso is long NUAN; Grasso is long MO; Grasso is long PFE; Grasso is long PRST; Seymour is long BAC; Seymour is long INTC; Adami owns C; Adami owns GS; Adami owns MSFT; Adami owns AGU; Adami owns NUE; Adami owns INTC; Adami owns BTU
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Stuart Frankel & Co and it’s partners own CSCO
Stuart Frankel & Co and it’s partners own HPQ
Stuart Frankel & Co and it’s partners own MU
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Stuart Frankel & Co and it’s partners own ZNGA
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Robert W. Baird & Co. Incorporated makes a market in the securities of JWN.
For Brad Hintz
Brad Hintz, as a former Managing Director at Morgan Stanley Group (MS), owns an equity position in MS that is held in a Morgan Stanley Group ESOP Trust at Mellon Bank as convertible preferred stock. These MS ESOP securities were awarded to him as compensation and are fully vested. Mr. Hintz is also an investor in Morgan Stanley Capital Partners III, LP — a merchant banking fund where Morgan Stanley maintains an equity interest as a limited partner. Mr. Hintz participates in the Morgan Stanley Pre Tax Investment Plan, which is a deferred compensation plan structured as a note to Mr. Hintz from Morgan Stanley with the return on the note tied to one of many alternative asset classes. In addition, as a result of the complete spin-off of Discover from Morgan Stanley on June 30, 2007, Mr. Hintz received a long position in Discover stock as a beneficiary of the Morgan Stanley ESOP. These shares of Discover will ultimately be distributed to Mr. Hintz by the ESOP trustee.
For Adam Holt
Morgan Stanley & Co. International PLC and its affiliates have a significant financial interest in the debt securities of Adobe Systems, Autodesk, Intuit, Microsoft, Oracle Corporation, Symantec.
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River Twice is long GOOG
River Twice is long AAPL
River Twice is long MA