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Goldman, Lehman outlooks cut to "negative" by S&P

21/03/2008 - 17:15

NEW YORK (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 JPMorgan 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.

(Reporting by Jonathan Stempel; Editing by Leslie Adler)


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