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Morgan Stanley downgrades Credit Suisse

Morgan Stanley downgraded Credit Suisse and cut its share-price target on five European wholesale banks. Morgan Stanley also said it continues to be bearish on the 2009 outlook for the banks.

“We still feel that dilution concerns remain uppermost for investors, even if much is already priced in, given the very high leverage ratios of European wholesale banks on total balance sheet, weakening credit conditions and little visibility on wholesale earnings for 2009,” it said.

It downgraded Credit Suisse to “equal-weight” from “overweight,” citing further impairment risk from forced shrinkage and winding down businesses.

It advised investors to switch out of Credit Suisse into Julius Baer, Switzerland's third-biggest asset manager. Morgan Stanley also resumed coverage of UBS AG with an “equal-weight” rating.

“We would avoid most of the European wholesale banks until at least after reporting season,” it said. (Reuters)