Moody's set for bank ratings cuts Thursday: sources LONDON/CHARLOTTE, North Carolina (Reuters) - Ratings agency Moody's is set to announce downgrades of many of the world's biggest banks later on Thursday, banking industry sources said. Moody's Investors Service has said it will release the ratings reviews on 15 major banks, including significant downgrades for many, by the end of June. Three banking sources familiar with the plans said the downgrades were due to come later on Thursday, although the timing on the release could slip into Friday. The ratings cuts could increase funding costs for Morgan Stanley (MS.N) and other banks, and trading partners may ask for more collateral. But the impact could be muted if changes are in-line with indications given by Moody's in February on how much banks were likely to be cut by. A spokeswoman for Moody's declined to comment on the exact timing. There has been speculation the downgrades were imminent for several days. "The rating agencies are doing their best to point out that government support may not be what it used to be," said Peter Hahn from Cass Business School. "The rating agencies' high ratings were overly generous and largely correct on the level of government support for banks pre-crisis and it seems likely they will overshoot the other way in the current turmoil," he said. In February Moody's said U.S. bank Morgan Stanley and Swiss banks UBS (UBSN.VX) and Credit Suisse (CSGN.VX) could be cut by up to three notches. There could be cuts of two notches for Barclays (BARC.L), BNP Paribas (BNPP.PA), Citigroup (C.N), Credit Agricole (CAGR.PA), Deutsche Bank (DBKGn.DE), Goldman Sachs (GS.N), HSBC Holdings (HSBA.L), J.P.Morgan (JPM.N) and Royal Bank of Canada (RY.TO). Moody's has said there could be one notch downgrades for Bank of America (BAC.N), Royal Bank of Scotland (RBS.L) and Societe Generale (SOGN.PA). Nomura (8604.T) and Macquarie (MQG.AX) were included in an original list of global banks, but have already been downgraded. Morgan Stanley (MS.N) has been viewed as the U.S. bank that would suffer the most from a Moody's downgrade, because of its relatively large trading operation and because of the extent of the cut that Moody's threatened. In a May securities filing, Morgan Stanley estimated that the impending downgrade would cost the bank $1.03 billion to $9.6 billion in additional collateral postings and termination payments to derivatives counterparties and clearinghouses. Moody's said in February that it might cut Morgan Stanley by either two or three notches from its previous A2 rating. The worst-case scenario would leave the bank at a Baa2 rating, which is just two steps shy of junk. Investors, rattled by the European debt crisis, have already been trading Morgan Stanley bonds at essentially junk levels. The effects of the Moody's action are probably already factored into stock and bond prices, but they could widen the division between the strongest banks and their weaker competitors. With their ratings hovering not far above junk status, Morgan Stanley, Citigroup (C.N), Bank of America Corp (BAC.N) and others could lose market share to stronger competitors, analysts said. Morgan Stanley, like other big banks, has previously disagreed with Moody's review, with executives arguing publicly that a downgrade made little sense given that the bank was far less risky and had far more money on hand than it was before the financial crisis erupted. The stocks of banks being reviewed have been under pressure since Moody's announced its plans on February 15. Morgan Stanley's shares, for example, are down about 25 percent since the day before the announcement. "This has been a painfully slow process and damaging because it allowed speculation to continue as long as it has," said Gary Townsend, chief executive of Hill-Townsend Capital, in Chevy Chase, Maryland. In a report on Wednesday, CLSA analyst Mike Mayo said the downgrades are likely priced into the stocks of banks such as Morgan Stanley and Bank of America, but the firms could face a loss of business from the actions. "Lower ratings will likely reduce the degree of trading activities over time at a particular institution," Mayo wrote. Reporting by Steve Slater, Matt Scuffham and Rick Rothacker; additional reporting by Lauren Tara LaCapra; Editing by Elaine Hardcastle