S&P Cuts Outlook for Goldman and Lehman to Negative
Just when you thought it was safe to go back in the water, Standard & Poors today lowered its outlook on Goldman Sachs (NYSE: GS) and Lehman Bros (NYSE: LEH) to negative from stable. S&P affirmed its credit ratings at AA-/A-1+ for Goldman and A+/A-1+ for Lehman.
S&P said “the favorable effect of the Federal Reserve’s unprecedented support for the U.S. broker-dealers mitigates liquidity concerns by instilling confidence
in the capital markets. Nevertheless, we believe that negative rating outlooks
are broadly appropriate for the independent securities firms, reflecting the
potential for a more substantial decline in profitability from capital market
activities.
Our current expectation is that net revenues could decline 20%-30%
year-on-year (adjusting for writedowns).
Although this would erode companies’ margin of safety, we believe it could still be accommodated within the current ratings, especially taking account of the recent supportive stance of the Federal Reserve. Nonetheless, we see some possibility, were there to be persisting capital markets turmoil and sharply weakening economic conditions, that financial performance could deteriorate significantly more than we now assume, which would call the current ratings into question.
S&P’s said its ratings remain unchanged for Morgan Stanley at AA-/A-1+ on
CreditWatch with negative implications, and for Merrill Lynch at A+/Negative/A-1.
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