A major potential negative catalyst for financials globally is rapidly approaching as 114 banks are on review-for-downgrade by Moody's across 16 countries. Why do we care so much about ratings given their historical credibility? Ask James 'Jimmy-boy' Gorman of Morgan Stanley who is currently begging cap-in-hand to Moodys not to downgrade his empire bank, since he knows (and so it seems does the CDS market) that, as the FT notes [6], a downgrade could also force the bank to provide additional collateral to back its vast derivatives business - where it acts as one of the largest counterparties. In Europe, the fun heats up in the next few weeks as first Italian banks (4/16), then Spanish banks (4/23) and then Austrian (4/30) face from 1 to 4 notch downgrades and the potential to lose their short-term (funding-/CP-related) Prime-1 top rating, implicitly raising funding costs (and liquidity concerns) even further.
[7]
and potentially even more serious, banks that face loss of P-1 short-term rating...
[8]
Source: (ironically) Morgan Stanley