Shares in US investment banks fell sharply yesterday as a number of Standard & Poor's (S&P) credit downgrades sparked fears of fresh write-downs and further losses in second quarter trading.
S&P lowered ratings for Morgan Stanley, Merrill Lynch and Lehman Brothers, citing a negative outlook for all three banking giants.
Lehman Brothers took the hardest hit, its share price fell 8.1% after S&P downgraded its long-term rating from A+ to A.
S&P says the effects of March’s difficult operating environment will only be reflected in Lehman's Q2.
“We expect a relatively meaningful deterioration in Lehman's second-quarter performance owing to a generally slower business environment, additional write-downs on certain troubled exposures, and the negative effects of hedges due to basis risk and de-levering of the balance sheet,” the ratings agency says.
Merrill Lynch was cut from A+/A-1 to A/A-1, with continuing uncertainty sending its shares down 2.96%.
“We could lower the rating further if Merrill Lynch incurred additional large losses – either as a result of depressed business conditions or additional large write-downs,” S&P says.
“We could also lower the ratings if more concerns arise regarding the company's ability to sustain potential liquidity stresses.”
Morgan Stanley was downgraded to A+/A-1 from AA-/A-1+, causing its share price to fall 2.55%. S&P says Morgan’s financial performance during the past three quarters has been weak and improvement could be “considerably more muted” than previously assumed.IFAonline
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Short-term noise or something sinister?