Saturday, March 22, 2008

S&P Flags Goldman, Lehman

Standard & Poor's, in a continuing sign of loss of confidence in investment banks' profitability, Friday put Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. on negative outlook, lowering them from stable.

Although S&P didn't change the senior-debt ratings from AA-minus for Goldman and A-plus for Lehman Brothers, it brought its view of the likelihood of a precipitous decline in profits at the Wall Street firms during the next two years to the same negative levels it previously assigned to Merrill Lynch & Co. and Morgan Stanley.

The changes in the ratings outlooks are appropriate despite the fact that recent actions by the Federal Reserve have instilled confidence in the capital markets, S&P added.

"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," S&P said in a report whose principal authors are managing director Scott Sprinzen and analyst Diane Hinton. "Our current expectation is that net revenues could decline 20%-30% year-on-year" after write-downs.