Morgan Stanley posts $3.7 billion collateral since downgrade

Thu Jul 19, 2012 8:18am EDT

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(Reuters) - Morgan Stanley has posted $3.7 billion in collateral and other payments since Moody's downgraded the investment bank's credit ratings, though the pace of collateral calls has slowed, Chief Financial Officer Ruth Porat said in an interview.

Morgan Stanley said in its earnings report on Thursday that it posted $2.9 billion in collateral and other payments during the second quarter, out of a possible $6.3 billion.

The bank posted an additional $800 million in collateral and other payments to counterparties in July, bringing the total to $3.7 billion.

Moody's downgraded 15 banks on June 22. It cut Morgan Stanley's rating by two notches, less than a potential three-notch downgrade it had warned about earlier in the year.

Porat said that prior to the ratings cut, clients, particularly in the fixed-income trading business, held back on doing business with Morgan Stanley as they waited to see what would happen. Since the downgrade, conditions have improved and the pace of collateral calls and termination payments has slowed, she said.

"As this process wore on, we could really see - in particular through June - clients were really taking a wait and see (approach) because it wasn't really clear where Moody's might come out," Porat said. "Having that cloud lifted has really been a good thing."

Morgan Stanley shares were down 5.1 percent at $13.27 in premarket trading after its earnings report.

(Reporting By Lauren Tara LaCapra; editing by John Wallace)

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