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.
21 March 2008
S&P Cuts Investment Banks Outlook to 'Negative'
The Fed is Now Bailing Out COMMERCIAL Real Estate?
The Open Market Trading Desk of the Federal Reserve Bank of New York (“Desk”) has engaged in extensive consultation with market participants on the overall design and technical features of the Term Securities Lending Facility (“TSLF”) since it was announced on March 11, 2008. As a result of this consultative process, the Desk is announcing a few modifications to the previously released program terms and conditions, as well as providing more details on the parameters of the first auction, scheduled for Thursday, March 27, 2008 at 2:00 p.m. Eastern time.
The Desk will conduct the first TSLF auction on March 27. The offering size will be $75 billion for a term of 28 days.The first TSLF auction will be a loan of Treasury securities against Schedule 2 collateral rather than against the Schedule 1 collateral previously proposed.
To facilitate the operational processes of the facility, the Federal Reserve has also expanded the list of eligible collateral for Schedule 2 to include agency collateralized-mortgage obligations (CMOs) and AAA/Aaa-rated commercial mortgage-backed securities (CMBS), in addition to the previously announced AAA/Aaa-rated private-label residential mortgage backed securities (RMBS) and OMO-eligible collateral.
The minimum fee rate for the TSLF Schedule 1 and Schedule 2 auctions will be set at 10 basis points and 25 basis points, respectively, with the actual fee rate resulting from the TSLF single-price auction format. The auction-determined lending fee rate should be approximately equal to the spread between the Treasury general collateral rate and the general collateral rate for the pledged collateral over the term of the loan.On Wednesday, April 2, the Desk will announce the size and the Schedule of eligible collateral for the second auction to be held on April 3. The size and Schedule of eligible collateral of all future auctions will be based upon the Desk’s assessment of auction demand, as well as on information gathered in ongoing discussions with market participants and prevailing funding market conditions. In total, the Desk has been authorized to lend up to $200 billion of Treasury securities through TSLF auctions.
20 March 2008
Hey Ben! What's in Your Wallet?
Technically that dollar in your pocket, a Federal Reserve Note, was debased this week.
Most people don't realize that the dollar is a unit of measure. There are dollars, and then there are those pieces of paper you may have called Federal Reserve Notes. They are IOUs from a private bank called the Federal Reserve. They are usually backed, or collateralized, by 100% US guaranteed debt, Treasuries and select agencies like Ginnie Mae (and not pseudo-guaranteed agencies like Fannie and Freddie).
Did we just witness an historic first this week? Did the Federal Reserve Note just get debased by about fourteen percent? Is a portion of the Federal Reserve Note now backed by the private and illiquid obligations of Wall Street?
Here is an excerpt from the Fed's Balance Sheet that comes out in the H.41 report every Thursday after the markets close.
Only 86% of Federal Reserve notes, rightfully IOUs from the Fed or Federal Reserve Notes, are still backed by AAA debt obligations.
There was quite a flash bang around Bear Stearns, the dollar and the metals this week. While we were distracted did Ben just cross the Rubicon by backing the FRN 'dollar' with junk? Treasuries are still Treasuries. Agencies are still agencies. But this ain't your daddy's dollar anymore. And certainly not your granddaddy's. We've taken a step almost as great as the loss of gold backing for the US dollar in circulation. Now it is not even backed by 100% AAA debt.
Welcome to interesting times.
