BlackRock Inc. (BLK), the world’s biggest asset manager, may be forced to reduce business with some banks if their credit ratings are downgraded by Moody’s Investors Service.
BlackRock is required to comply with clients’ portfolio mandates, which can govern the credit rating a counterparty must have for specific holdings, said Bobbie Collins, a spokeswoman for the New York-based firm. Potential downgrades may prompt a shift away from them, Collins said.
Moody’s Investors Service announced in February a review of 17 banks and securities firms with global capital markets operations, including Morgan Stanley (MS) and UBS AG (UBSN), which could have their ratings cut to the lowest level ever. Moody’s said last week that it expects to take action in May or June.
Laurence D. Fink, chairman and chief executive officer of BlackRock, told the New York Times that Moody’s move to downgrade some banks was misplaced in part because banks had established deeper capital cushions.
Fink didn’t say which banks BlackRock was concerned about, according to the New York Times, which first reported that BlackRock may reduce business with banks that are being downgraded.
BlackRock said last week that it plans to start a bond- trading system to match clients’ orders, rather than relying on Wall Street firms or other electronic networks to trade bonds.
If Moody’s cuts each of the firms it placed on review by the most levels cited in February, the separation between the top and bottom tiers of the nine largest global investment banks would widen.
JPMorgan Chase & Co. (JPM), Frankfurt-based Deutsche Bank AG and Credit Suisse Group AG would have a rating of A2, five levels above junk. Goldman Sachs Group Inc. (GS), Barclays Plc and UBS would be one level below them at A3. Morgan Stanley, Citigroup Inc. (C) and Bank of America Corp. (BAC) would be three grades below the top group, making the spread between JPMorgan and Morgan Stanley the biggest ever.
The full downgrades would result in a wider gap among banks than under Standard & Poor’s and would bring most lenders to lower ratings than S&P. That firm rates Deutsche Bank at A+, six levels above junk, JPMorgan and the three other European banks one grade lower at A and the rest of the U.S. banks at A-.