S&P Cuts Investment Banks Outlook to 'Negative'

Goldman, Lehman Rating Outlook Cut to Negative by S&P - Bloomberg
By Zhao Yidi

March 21 (Bloomberg) -- Goldman Sachs Group Inc., the biggest U.S. securities firm, and smaller rival Lehman Brothers Holdings Inc. had their credit-rating outlook cut to negative by Standard & Poor's, which said Wall Street banks' profits may fall as much as 30 percent this year.

''Our current expectation is that net revenue could decline'' between 20 and 30 percent year-on-year for independent securities firms, S&P said in a statement today. S&P affirmed its long-term credit ratings for Goldman and Lehman. Both companies are based in New York.

The Federal Reserve's decision last week to open a lending facility for brokers and provide financial support for JPMorgan Chase & Co.'s emergency takeover of Bear Stearns Cos. ''mitigates liquidity concerns,'' S&P said. ''Nonetheless, we see some possibility, were there to be persisting capital markets turmoil and sharply weakening economic conditions, that financial performance could deteriorate significantly.''


Goldman, Lehman outlooks cut to 'negative' by S&P - Reuters
Fri Mar 21, 2008 11:19am EDT

NEW YORK, March 21 (Reuters) - Goldman Sachs Group Inc's and Lehman Brothers Holdings Inc's credit rating outlooks were cut on Friday to "negative" from "stable" by Standard & Poor's, which cited the potential for larger profit declines from capital markets activities.

S&P rates Goldman's long-term credit "AA-minus," its fourth-highest investment grade, and Lehman's "A-plus," its fifth highest. The outlook revision suggests conditions that may result in a downgrade within two years. Lower credit ratings can result in higher borrowing costs.

The credit rating agency said Goldman has been Wall Street's profit leader for several years and has very strong liquidity, but that its emphasis on trading and "aggressive" risk appetite expose it to potential for "major missteps."

Meanwhile, S&P said Lehman has a stable base of funding and strong fundamentals, but "could suffer severely if there was an adverse change in market perceptions, however ill-founded."

Goldman and Lehman representatives did not immediately return calls seeking comment.

Goldman is Wall Street's biggest bank by market value and Lehman is Wall Street's fourth largest bank.

S&P said volatile market conditions and this month's "virtual collapse" of Bear Stearns Cos highlight the exposure to vagaries in capital markets that Wall Street investment banks have.


The credit rating agency said net revenue may decline 20 percent to 30 percent this year for investment banks.

It warned that if market turmoil persists and the economy weakens sharply, then "financial performance could deteriorate significantly more than we now assume, which would call the current ratings into question."

Bear Stearns agreed on Sunday to be acquired by JP Morgan Chase & Co (for about $236 million, or $2 per share, nearly 99 percent less than it was worth a year earlier.

S&P also said it may still downgrade Morgan Stanley's "AA-minus" rating, while it retained a negative outlook on Merrill Lynch&Co's "A-plus" rating.