The Hindu Business Line : S & P downgrades top US investment banks

Chennai, June 3 International rating agency, Standard & Poor’s (S & P) has lowered its ratings on a number of top investment banking companies in the United States. S & P has downgraded Lehman Brothers Inc., Merrill Lynch & Co. Inc., and Morgan Stanley.

According to a press release issued by S & P, it has also revised its outlook on Bank of America Corp. and JP Morgan Chase & Co. to negative. In addition, Standard & Poor’s affirmed its ratings on Citigroup Inc., and assigned a negative outlook. The rating outlooks on the large financial institutions sector in the U.S. are now predominantly negative.

These ratings reflect S & P’s expectation of further sharp deterioration in U.S. residential mortgage loan portfolios and residential construction. It said, “We believe loss rates in those loan sectors are poised to exceed historical levels by a wide margin. This could depress earnings to a greater extent than is discounted in our current ratings.”

The negative ratings for the investment banking industry are a consequence of continued weakness in the business and the possibility of more write-offs. The rating rationale however seems to suggest that the worst may be over and the losses and write-offs may not be of the same magnitude of the past quarters. It said but for ‘the extraordinary capital raises by the industry’, the downgrades might have been more severe.

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