The Hindu : Business : S&P lowers ratings on Lehman, Merrill

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S&P lowers ratings on Lehman, Merrill

Special Correspondent

The action reflects weakness in investment banking business

MUMBAI: At the conclusion of its review of global universal and investment banks, Standard & Poor’s Ratings Services lowered its ratings on Lehman Brothers Inc., Merrill Lynch & Co. Inc., and Morgan Stanley. The outlook for all these entities is negative.

Standard & Poor’s Ratings Services also said that it affirmed its counterparty credit ratings on the Goldman Sachs Group and its outlook is negative. Among major players in the securities industry, Goldman Sachs has one of the heaviest concentrations in trading and investment banking.

S&P also revised its outlooks on Bank of America Corp. and JPMorgan Chase & Co. to negative.

In addition, S&P affirmed its ratings on Citigroup, removed the ratings from CreditWatch negative, and assigned a negative outlook. “We also placed the ratings on Wachovia Corp. on CreditWatch negative. The outlooks on the large financial institutions sector in the U.S. are now predominantly negative,” S&P stated in a press release.

Funding models

“The negative actions reflect prospects of continued weakness in the investment banking business and the potential for more write-offs, though not of the magnitude of those of the past few quarters,” explained S&P credit analyst Tanya Azarchs.

“They also reflect a reassessment of the vulnerabilities of the wholesale and less diversified model of funding for the specialised investment banks.”

For the universal banks, the outlook revisions reflect “our expectation of further sharp deterioration in U.S. residential mortgage loan portfolios and residential construction.”

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