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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