Downgrading either one will in no way effect the millions/billions made for assisting in creating the economic mess for those CEO's at the very top.
Posted on 03/22/2008 4:12:29 AM PDT by TigerLikesRooster
March 22, 2008
Goldman Sachs and Lehman Brothers face downgrading
Tom Bawden in New York
Profits at Goldman Sachs and Lehman Brothers could deteriorate significantly this year if the turmoil sweeping the capital markets persists, a leading research agency said yesterday.
Standard & Poor's (S&P) gave warning that it might cut the credit ratings on both investment banks, lowering the outlook on Goldman and Lehman from “stable” to “negative”. That comment, which coincided with reports of looming job losses at Goldman, could result in higher borrowing costs and a fall in the banks' shares.
S&P praised Goldman Sachs for producing a string of record profits in recent years and said that it had a solid capital base. However, it noted that much of Goldman's recent success was based on a significant rise in trading, and S&P said that the group's “aggressive” appetite for risk left open the potential for “major mis-steps”.
S&P said that it expected independent securities firms, such as Goldman and Lehman, to report profit declines of between 20 per cent and 30 per cent for the year. “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,” the S&P report read.
Goldman Sachs has a rating of AA- on its long-term senior debt, the fourth-highest level, and Lehman is one notch below, at A+. The S&P report comes in a week in which Goldman and Lehman reported significant first-quarter profit declines that, nonetheless, were considerably ahead of consensus analyst forecasts.
This week Goldman reported a 53 per cent decline in first-quarter profits to $1.51 billion (£762 million), as the group announced about $2.5billion of writedowns relating to so-called leveraged loans that finance private equity deals, mortgages and direct investments. Meanwhile, Lehman recorded a 57 per cent decline, to $489 million, after taking a $2 billion hit from the credit crunch.
S&P's potential ratings downgrade emerged only hours after reports that Goldman Sachs would impose significant job cuts in its investment banking, debt and equity underwriting and merger advisory units. It is understood that Goldman, which employs about 32,000 worldwide and typically cuts the bottom 5 per cent of its workforce annually, will eliminate additional jobs in its worst-performing departments this year. However, David Viniar, the chief financial officer, said that the group's headcount for the year would grow slightly, and it is understood that this is still the plan, even with the extra job cuts. Goldman declined to comment on the possible additional redundancies.
The cuts would follow the elimination of a further 1,800 jobs at Citigroup worldwide, which is expected to result in hundreds of positions disappearing in the City. The cuts, which will affect investment banking and trading as well as hedge fund and private equity services, come on top of about 21,200 redundancies in the past year.
Wall Street and the City face huge redundancies as the credit crunch continues to spread. This week the Centre for Economic Business Research increased its estimate for the number of job losses in the City this year from 6,500 three months ago to 10,000.
Ping!
Wow! I know a fellow who got out of a deal that had G/S as the deep-pocket behind the deal. Boy, is he relieved to be whole.
The ratings agencies like S & P are the source of the sub prime mess in the first place. Good to see they’re back on the job...
~~Alan Schwartz, Bear Stearns CEO, March 10, 2008
It’s quite possible that on March 10th what Schwartz said was true. You do know that there is an investigation to find out if there were people who tried to profit by creating “run on the bank” at Bear Stearns.
You should have shorted Lehman on March 17th. You would be down over 100% by now.
Kinda makes LEH’s expiration-day short-squeeze (man that is a textbook graph of a short squeeze) from 42 to 50 look just a wee bit suspicious. And you know I’m not a suspicious person *cough*.
I’ll say it again, these multi-percent moves up and down every other day are NOT the sign of a market that is instantly digesting and completely and efficiently reacting to every technical and new fundamental disclosure. They are a sign of overcorrection, or wild movement for no reason whatsoever. The wheels are coming off the cart.
I think a lot of people have figured out that the Friday miracle rallies are just attempts to shake us out of our short positions at the worst possible time. A lot can happen in two, or in this case, three, days, and you gotta bet that the stuff that happens is gonna be bad instead of good.
That said, I wonder if Monday “They” will do the old “panic gap down is the low of the day” as is their usual practice. Screw ‘em. I’m fully re-loaded with QID’s at 52.80, in the red for the moment but far below my previous sale, and I’m holding.
Now there’s a Free Republic first — a retroactive stock recommendation for losing money.
Let's see. Lehman was driven down by the incorrect fear that it was the next Bear Stearns. Then it came out with a good earnings report, the Fed did a nice rate cut, and Fannie Mae and Freddie had part of their excess capital restrictions lifted. All good news for Lehman when some people thought it would be their darkest hour. It's all explainable, not a miracle.
Downgrading either one will in no way effect the millions/billions made for assisting in creating the economic mess for those CEO's at the very top.
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