Credit rating agency Moody’s Investors Service has cut the investment grade ratings of Goldman Sachs’ “flagship banking entity in Europe” and Morgan Stanley’s main banking subsidiaries in the region, following a “reassessment” of the extent to which these operations might benefit from the financial support the US government is providing their parents.

In a release yesterday, Moody's said that it had downgraded Goldman Sachs Bank (Europe) Plc's long-term debt and deposit ratings one notch to investment grade A1 from Aa3, and Morgan Stanley Bank International Limited's long-term debt and deposit ratings one notch to A2 from A1. It threatened the possibility of further downgrades.