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To: scotty who wrote (19756)	9/25/1998 12:36:00 PM
From: Giraffe	Respond to of 116762

This story just gets more and more interesting - especially when we see who had their fingers in the pie. Friday September 25, 12:15 pm Eastern Time Rating agencies warn of potential bank downgrades By Apu Sikri NEW YORK, Sept 25 (Reuters) - Rating agencies warned on Friday they were reviewing the credit quality of all major U.S. and European banks following the near-collapse of Long-Term Capital Management LP and would probably lower the ratings of several financial institutions. Standard & Poor's took the first shot at banks on Friday by cutting its rating on Bankers Trust Corp (NYSE:BT - news). senior debt to A-minus from A. It cited the bank's heavy dealings with riskier clients. Moody's Investors Service Inc. has Bankers Trust's A2 rating on watch for a possible downgrade. ''We're scrutinizing every bank with emerging markets exposures, hedge fund exposures and other types of risky assets that could be impacted by these huge market movements,'' said Christopher Mahoney, managing director and head of the banking and sovereign group at Moody's. Banks that earn the bulk of their revenue from lending to other institutions, such as U.S. banks Chase Manhattan Bank (NYSE:CMB - news) and J.P. Morgan & Co. Inc.(NYSE:JPM - news) , face ''the greatest risk of an adverse impact from this market volatility downgrade,'' Mahoney said. ''The credit cycle has definitely turned and any exposure to hedge funds is a source of concern. ... It could be a source of ratings downgrades in the not-too-distant future,'' said Tanya Azarchs, a director at Standard & Poor's Ratings Group. A lower credit rating raises the cost of financing for banks, which earn profits by borrowing at low rates and then lending it at higher rates. The higher their borrowing cost, the lower their profit. Some of the world's largest and most powerful banks and brokerages were lenders to Long-Term Capital, the Greenwich, Conn.-based hedge fund that was rescued from the brink of collapse earlier this week. These banks and brokerages now face losses not only from lending to Long-Term Capital, but possibly from other hedge funds with losing trades. They also risk large losses from investments in emerging markets such as Russia and Brazil, ratings officials said. Brokerages that lent to Long-Term Capital included Merrill Lynch and Co. Inc. (NYSE:MER - news) and Goldman Sachs & Co. Banks included Germany's Deutsche Bank AG (quote from Yahoo! UK & Ireland: DBKG.F) and Dresdner Bank AG (quote from Yahoo! UK & Ireland: DRSD.F), Switzerland's CS Group and Union Bank of Switzerland , Britain's Barclays Plc (quote from Yahoo! UK & Ireland: BARC.L), France's Banque Paribas and Societe General as well as J.P. Morgan and Chase Manhattan. Some banks even made direct investments in the hedge fund and were equity holders. Union Bank of Switzerland (UBS) said Thursday it recorded a loss of $685 million from its investment in Long-Term Capital. Dresdner Bank said Friday it would take a charge of $144 million as a result of being an equity holder in the hedge fund. Moody's, which rates UBS triple-A, put the bank on review for a possible downgrade. Many banks are loaded with investments in bonds and other securities issued by lower-rated corporations and emerging nations. ''One of the primary questions is: at what prices are these securities being carried on the books of the banks,'' said Mahoney at Moody's. Recent changes in U.S. accounting rules require banks to record the value of their securities holdings at current market prices. But in the current market, the lack of liquidity and transparency has made pricing of many securities difficult. The levels at which banks value these holdings and the period in which they record profits and losses will affect bank earnings, ratings agencies said. Losses at hedge funds and other financial institutions escalated after Russia defaulted on its domestic debt last month, sending prices plunging on all outstanding obligations of emerging markets and other borrowers.