Bank stocks are up slightly across the board this morning following a downgrade by Moody’s that many analysts expected would be far more severe. JPMorgan (JPM) and Morgan Stanley (MS) have seen the largest rises, but Goldman Sachs (GS), Bank of America (BAC), and Citigroup (C.) have all also posted modest gains.
JPMorgan has paced the banking sector this morning, up nearly 2.5% so far following Moody’s two notch downgrade on its debt from A2 to Aa3. Much of JPMorgan’s positive momentum comes from Moody’s acknowledgment that JPMorgan has stronger buffers than most banks to help cope with the volatility of the current market. JPMorgan has a strong capital base and less exposure to risky European markets. In fact, JPMorgan was one of the top-rated banks in Moody’s industry-wide report despite recently announcing over $4 billion in trading losses from the activities of its Central Investment Office in London.
JPM is currently trading at $36.34 after posting lows of just above $30 after announcing the trading losses. The next levels of resistance to watch are $36.50 and then $37.03.
Morgan Stanley has also risen nearly 2% already in this morning’s trading after Moody’s rated the banks debt as Baa1, a two notch downgrade from the bank’s previous credit rating. Many analysts had expected a full three notch downgrade. The downgrade has led to the bank’s lowest credit rating in at least 20 years, and Morgan Stanley has estimated that the two notch downgrade will force it to post an additional $6.8 billion in collateral to satisfy trading partners.
Morgan Stanley was hit hard during the 2008 financial crisis, and posted near $9 billion losses on bad bets on real estate. Since then, James Gorman, Morgan Stanley’s CEO, has focused on reducing risk and increasing capital at the bank in order to improve its standing. He grew the firm’s wealth management unit, a steady fee-based business, and scaled back more risky proprietary trading activities. But it seems his actions were not enough for Moody’s.
Morgan Stanley is currently at $14.23. The first resistance level to watch is right at $15, but past that there is room to rise all the way to about $16.80 before the stock hits resistance.
By Phillips Hogan
Disclosure: Author has no relevant positions