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Non-Tech : Goldman Sachs Group Inc. NYSE:GS -- Ignore unavailable to you. Want to Upgrade?

To: Don Green who wrote (195)	7/16/2001 8:29:30 PM
From: Don Green	Read Replies (1) \| Respond to of 411

Goldman, Merrill, MSDW Credit Outlooks Cut By S&P (Update2) By Lee Theodoros 07/16 16:22 New York, July 16 (Bloomberg) -- Morgan Stanley Dean Witter & Co., Goldman Sachs Group Inc., and Merrill Lynch & Co. may have their credit ratings cut because of a slump in business and more competition from commercial banks, said Standard & Poor's. The credit-rating company cut the securities firms' outlooks to ``negative'' from ``stable,'' saying they may have to make more risky loans to compete with banks such as J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc. While S&P's move doesn't mean the companies' ratings will be cut, it prompted a drop in the their bonds that pushed up yields, raising borrowing costs. In order to win business, many firms ``must actually rent their own balance sheet,'' providing less profitable financing such as credit lines to clients, S&P said. ``These developments result in higher industry risk.'' The gap, or spread, between yields on the securities firms' bonds and U.S. Treasuries widened by about 0.05 percentage point after the report was released, suggesting investors view the debt as riskier and want to be compensated for holding it. Morgan Stanley 10-year notes, for instance, were quoted at a spread of about 1.58 percentage points, up from 1.54 percentage points before the announcement. Securities firms have been hurt by a decline in the industry's most lucrative businesses, mergers and acquisitions and equity underwriting. At the same time, they are increasingly having to offer products such as senior bank loans and commercial paper backup lines to compete with banks that are offering such financing, S&P said. More Pressure The longer a drop in business goes on and competition increases from banks, ``the greater the pressure on institutional securities firms to extend credit to maintain overall business activity,'' S&P said in a statement. Commercial banks' capital, and their ability to extend credit, dwarfs those of traditional Wall Street firms. Capital at Bank of America, the largest U.S. bank by deposits, for instance, totaled $63.1 billion as of March. Goldman Sachs, by contrast, had $48.2 billion of capital at the end of February. Morgan Stanley and Merrill Lynch carry long-term ratings of ``AA-,'' the fourth-highest of S&P's investment-grade ratings. Goldman is rated one notch lower at ``A+.'' Morgan Stanley and Merrill are rated ``Aa3'' by rival Moody's Investors Service, while Goldman is rated ``A1.'' ``While we make selective use of our balance sheet to enhance priority relationships and complement our investment banking strategy, we do so through a carefully managed credit and risk management process,'' said Merrill spokesman Richard Silverman in response to the S&P release. Officials at Morgan Stanley and Goldman weren't immediately available to comment on the report. Morgan Stanley shares fell $2.97, or more than 4 percent, to $58.45. Merrill fell $1.35 to $53.15, while Goldman fell $2.75 to $83.40.