Morgan Stanley’s plan to shift a large chunk of its $52tn derivatives portfolio into the part of the group backed by customer deposits is facing regulatory obstacles, according to people familiar with the situation.
Under the plan – partly an attempt to reassure trading partners of its financial strength ahead of a looming credit downgrade by Moody’s – Morgan Stanley would move derivatives into its bank subsidiary, which has a higher credit rating than the group as a whole.
But the US Federal Reserve has yet to approve the request after considering it for an extended period.
The derivatives move should also make it less likely that counterparties take their business from Morgan Stanley to higher-rated competitors such as JPMorgan Chase even if Moody’s follows through on a threat to downgrade its credit rating by up to three notches to Baa2 from A2.
Keep reaading: M Stanley derivatives switch hits hold-up – FT.com.