Margin Stanley Is Back: Bank Must Post $10 Billion In Collateral In Case Of 3 Notch Downgrade

Tyler Durden's picture

Last week it was Bank of America. This time it is the bank once again known as Margin Stanley. From the 10-Q: "In connection with certain OTC trading agreements and certain other agreements associated with the Institutional Securities business segment, the Company may be required to provide additional collateral or immediately settle any outstanding liability balances with certain counterparties in the event of a credit rating downgrade. At March 31, 2012, the following are the amounts of additional collateral, termination payments or other contractual amounts (whether in a net asset or liability position) that could be called by counterparties under the terms of such agreements in the event of a downgrade of the Company’s long-term credit rating under various scenarios: $868 million (A3 Moody’s/A- S&P); $5,177 million (Baa1 Moody’s/ BBB+ S&P); and $7,206 million (Baa2 Moody’s/BBB S&P). Also, the Company is required to pledge additional collateral to certain exchanges and clearing organizations in the event of a credit rating downgrade. At March 31, 2012, the increased collateral requirement at certain exchanges and clearing organizations under various scenarios was $160 million (A3 Moody’s/A- S&P); $1,600 million (Baa1 Moody’s/ BBB+ S&P); and $2,400 million (Baa2 Moody’s/BBB S&P)." As a reminder, on February 15 Moody's warned it’s considering downgrades of US banks and may cut Morgan Stanley as much as, you guessed it, 3 notches. Needless to say this explains why "CEO James Gorman has met with the ratings firm more often than usual in the past quarter." Net - if the firm sees a 3 notch downgrade as warned the hit will be an AIG-shudder inducing $9.6 billion, or one third of the company's market cap, and enough to leave all shareholders wishing they had exposure to Greece, and no exposure to Morgan Stanley.

In some better news, Morgan Stanley reported that is trading magic is back making over $100 million in trading profits on 9 days in the past quarter:

Hopefully the firm is as profitable in the current quarter if indeed Moody's follows through on its threat and crushes the equity value of the company.

All joking aside, Morgan Stanley is so lucky it is a Bank Holding Company and has billions in FDIC-insured deposits to buffer any blow to its balance sheet.  Right?

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Dear Infinity's picture

HAHA! Wait for it, they'll be going after customer deposits like Bank Of America did soon enough! Sheila must be crapping her pants!

-Bernank Shmuelle Rockwell (

slewie the pi-rat's picture

hearken! 0h BiCheZ!

as "counterparties" steals upon the ear...

The Alarmist's picture

House of Morgan vs. House of Morgan?

sunaJ's picture

I was browsing the biggest losers in the Athens Index today and they are mostly banks - banks with share prices rarely above a couple euros, often below .50 cents.  These were heavy equity hitters a few years ago. It is the same case in America, we are just farther up the spiral.  Does anyone recognize the madness of financial institutions, such as those in America and Greece, that can remain corporately "solvent" right until the complete destruction of not only their customers, but their clients, investors, citizens and society?  Yet we keep them.  We think we need them.  We welcome more destruction and death to preserve them.  Wake up and get out.

SWRichmond's picture

The article illustrates the real danger of a deleveraging, and how a self-reinforcing deleveraging sucks capital out of the system and into a black hole.  This is why the bubble must be, and will be reinflated at all costs, even at the cost of a hyperinflation.

Does anyone besides me remember the multiple credit lockups that began in November 2008?  The MM break the buck scare, LIBOR lockup, the downgrades of the credit insurers (ACA Capital, etc), etc?  Deleveraging is a bitch.  We fought it last time with the housing bubble and papered over that bubble with CDS.  Remember?  I do.

What will we leverage this time?  The currency itself, bitches.

AccreditedEYE's picture

There isn't enough money... even if Ben used every tree in the world. Gravity will win out in the end.

SheepDog-One's picture

WOW many more bank downgrades imminent, surely means GOOD NEWS as equities will drop 1.5% and then the Bernank will have QE-Whatever green lighted. Wahoo!!

lotsoffun's picture

Sheila checked out.  Get it?  Not everyone supports sociopaths.


cossack55's picture

Maybe MS should move its corporate HQ to the edge of the aforementioned Santorini caldera.

Manthong's picture

"Must Post $10 Billion In Collateral"

What’s the big deal?

A lousy $10 Billion?.. Can’t they just get Bernanke to type a dozen digits or so on their account? Hell, he does it for just about everyone  else.

chunga's picture

BAC will be sued by SEC lawyers soon. Count on it.

redpill's picture

And suits from the SEC against large banks usually wind up with a kind settlement that rhetorically admonishes the bad actors but in practicality legitimizes their fraudulent behavior by imposing a laughably small penalty compared to the working capital of said financial institution (which they borrow for free from the Fed anyway).

chunga's picture

You're right.

I'm hoping this one will be different; but it probably won't though.

rosiescenario's picture

.....and the management (bad actors) do not pay the cost of the legal action nor the fine....the poor unfortunate shareholders just get screwed again.


What a joke.....the CEO's appoint boards beholding to them, get exhorbinant salaries, bonuses, and perks....then totally fuck up the companies.

AccreditedEYE's picture

This goes beyond "suit" to something much more important: solvency... and the SEC can't help them out with that.

Rainman's picture

'margin stanley'.....I see what you did... very clever.

Benjamin Glutton's picture

MS should have been closed when they moved derivatives to BAC...both may be deader soon.

navy62802's picture

These "banks" should have all perished in 2008, when the crisis hit. Instead, Hank Paulson was able to convince (with help from the bank lobby I'm sure) our Congress to approve a $700 Billion direct bailout. Thus, we have zombie banks. Or more accurately, Schrodinger banks ... both alive and dead at the same time. Balance sheets which spell disaster yet they post profits and survive at the same time. Until these institutions are dead and gone, we will suffer their fate. Even with the valuable gift of time, we have not devised a way to kill these institutions without harming the rest of the economy. In the end, we will end up with a worse disaster than if we had simply allowed these "banks" to fail in the first place. Oh yeah, and we're going to be trillions of dollars poorer when they finally go under.

Dugald's picture

Hoisted on your own pitard comes to mind.......

Or Greed is its own reward!

SAT 800's picture

Yes. But it would have caused really, really, bad things to happen all over the financial landscape; the interesting question is not what to do in 2008; when it's basically too late for any "right answer", but how did we got here? And this question is answerable. Whether or not the disaster will be "worse" or not so worse, now than it would have been to let them go bankrupt is probably impossible to determine; but it won't be very nice in any case.

donsluck's picture

You have said absolutely nothing. Commit, do you think it would have been better or worse if we didn't zombify the banks? Plus, you make a good point about how it's useless to second guess, especially something over which you have no control, then you go back to second guessing. Commit, what should we shmoes do now?

Matt's picture

Create a national bank with electronic debit cards, no cash withdraw capability.

Issue one card to every citizen, company, organization.

You can deposit money into it, and spend it from there. You cannot withdraw money, but can transfer it to another bank. You cannot transfer money from another bank account to this account. No fees for check or debit purchases.

If your bank goes under, the balance from your accounts with that bank are automatically added to your national bank account.

Once this is in place, let the banks fall as they will. no more bailouts.

This creates a firewall that prevents bank runs and public panic when banks collapse by insuring that depositors do not lose access to their money; the money instantly ceases to exist at the dead bank and is instantly in the new national bank account.

Once the bank collapses have ended, this national bank automatically winds down; you have 90 days from day X to transfer your money into a stable bank, credit union, trust, etc.



Bobbyrib's picture

Are you five years old?

Tijuana Donkey Show's picture

In reality, it is all monopoly money, so why not? If you did this, people wouldn't be afraid of letting the banks tank. I would add that if you owe a bank that failed money, your clear too. In any true accounting setup, you need debits and credits to equal 0.

Matt's picture

Let's hear your plan then. How to unwind this mess without a civil war, social collapse or totalitarian state? Or perhaps you like TBTF and endless bailouts for banks that take on more and more leverage? 

Of course, you have no actual criticism of the plan, or any thing useful to contribute, so you resort to personal attack. Stay classy.

navy62802's picture

This isn't an academic question. It's all too real. The decisions that were made in 2008 were not merely academic, as you seem to suggest. Sure, most Americans feel that the decisions were "academic" because they haven't felt the very real impact yet. But they will. The problem is that our politicians pushed these consequences further down the road with the bank bailouts. In the end, however, we will all face the consequences. There will be much pain and misery. That much is undeniable. But the question is when. When will we finally have to face the pain? Five years? Ten years? Fifteen? I would have rather faced the pain in 2008, when we had trillions less national debt. The longer we wait to face this problem, the more in debt we will be as a nation. And the worse off we are going to be heading into the hard times. You can procrastinate all you want, but eventually, you have to face the music.

DosZap's picture


I would have rather faced the pain in 2008, when we had trillions less national debt. The longer we wait to face this problem, the more in debt we will be as a nation.

Brother, how many times does it take?.This game was rigged from the get go, to do exactly whats being done.............GLOBALLY.

Could we have recovered far faster?, hell yes.

Bottom line, that is not their PLAN.


navy62802's picture

Guns, ammo, gold, food, clothing, medical supplies. Only response I have to that.

francis_sawyer's picture

Yeah ~ but I thought Obama came in with his "Economic DREAM TEAM" & fixed everything...

dksrox's picture

Too Big To Downgrade!!!

Josh Randall's picture

More Turd STAIN-ly, the dirt spot that keeps on surving the spin cycle 

realtick's picture

The MS chart is a disaster in the making:

Eclipse89's picture

My grandpa says this chart looks like his sexual performances over years.

Call Bernanke for a ultimate fresh viagra-dollar injections!
(prostate massage included)

lizzy36's picture


Good thing the Fed approved (latest stress test), MS plan to use CASH to buy another 14% stake in the MS/Smith Barney JV is has with Citigroup.

slewie the pi-rat's picture

even lordKeynes failed to invent the perpetual motion machine

lordChairsatan is gonna fail beyond belief!

[p.s.  i have known this for a fact, since 1972]

NotApplicable's picture

C'mon Slewie, it's easy.

All ya gotta do is loan yourself the money to buy up all of your loans at 0%.

Remember, the infinite is only possible within boundaries of zero size.

Tijuana Donkey Show's picture

Could Excel handle that? Or would I have to txt it while riding the perpetural motion machine?

Its_the_economy_stupid's picture

Open the Fed window and back up the truck!

Careless Whisper's picture

No need for that. They can just borrow the $10 Billion from their facebook friend Mark Z.

Shizzmoney's picture

Wait.......the same "Margin Stanley" that is in charge of setting up the IPO for "FraudBook"?

They are over leveraged? You're kidding!!!111

BGO's picture

$10,000,000,000 is a lot of cashish!

Poetic injustice's picture

Not anymore, you need trillion to get to news these days and quadrillion for CNBC show.

francis_sawyer's picture

 "A nickle ain't worth a dime anymore"

~Yogi Berra

ghengis86's picture

Not sure what this means...

Is it like when the house calls in it's marker before they let you gamble a few more hours in their casino?

And they crush your market cap instead of knee caps, right?

I think I'm beginning to understand

death_to_fed_tyranny's picture

Couldn't happen to a more deserving Bankster Cartel. STOP PAYING YOUR CREDIT CARDS!

Mugatu's picture

Reminds me of the old Cheech and Chong skit where two Indians run across a shit pile on the trail:

Indian #1 - "MMMM, that looks like moose shit"

Indian #2 - MMMM, (sniffs air) "smells like moose shit"

Indian #1 - MMMM, (reaches down and touches it)  "feels like moose shit"

Indian #2 - MMMM, (bends over and licks it) "tastes like moose shit"

Indian #1 - "Good thing we don't step in it"