Regions: Financial Winner (Update 1)

Moody's surprised investors by announcing a two-notch downgrade of Morgan Stanley's long-term senior unsecured debt rating to Baa1 from A2, the company faces total collateral calls of $6.8 billion, based on its March 31 trading positions.

After saying Thursday morning that Morgan Stanley seemed "confident" that the ratings downgrade would "not have an outsized impact on the firm," with the "primary revenue impact from the downgrade to be in its long-dated, uncollateralized interest rate derivatives, which MS has already de-emphasized," UBS analyst Brennan Hawken said on Friday that the company's "operating subsidiary rating now remains in line with many of its global bulge bracket competitors, instead of being an outlier (as would have been the case in a three notch downgrade)."

Hawken said that Moody's "ratings action should relieve much of the concern over potential revenue headwinds from a more negative outcome," but that while "the two notch downgrade likely takes away the more pressing threat to MS's more capital intensive businesses," the company "still needs regulatory approval to move its derivatives book into the bank subsidiary," and that "the difficult environment could make this a rather drawn out process, with the recent hedge trading losses at JPMorgan Chase exacerbating the issue."

Morgan Stanley's shares have now declined 6% year-to-date, following a 44% decline during 2011.