"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Tuesday, June 03, 2008

Bradford and Bingley catch cold, Wall Street gets pneumonia : S&P cans Big US Banks ratings - shares slide

``The outlooks on the large financial institutions sector in the U.S. are now predominantly negative,'' Standard & Poors Rating Agency said today and in a move that shicked Wall Street downgraded some major players credit ratings at the same time.

Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. declined in New York trading after Standard & Poor's lowered credit ratings for the investment banks, saying they may have to book more writedowns on devalued assets.

These are the S&P Re-Ratings :

Morgan Stanley, (2nd biggest U.S. securities firm by market value) : AA- down to A+
Merrill Lynch,(3rd biggest) : A+ down to A
Lehman Brothers, (4th biggest) : A+ down to A

Goldman Sachs Group Inc., the largest of the group, was affirmed at AA-.

The outlook on all four New York-based companies remains negative, S&P said WallStreetspeak for expect another downgrade.

Lehman fell US$3.22, or 9.5 %, to US $30.61 in NYSE composite trading (Over US$80 in feb 07)
Merrill lost US$0.73 , or 1.71 %, to US$41.89.
Morgan Stanley dropped US$1.13, or 2.6 %, to US$42.65.
Goldman lost US$1.76, or 1.02 %, at $170.58.

These downgrades on credit ratings (Unchanged for a long, long time) will make it harder for the banks to sell derivatives such as credit-default swaps that are tied to bonds or loans.

Merrill in it's last Qrtly filing said a one-notch downgrade of its credit rating would require it to post an additional US$3.2 billion of collateral on over-the-counter derivative trades.

Morgan Stanley estimated in a regulatory filing that a single level downgrade would mean posting an extra US$973 million.

Lehman said a one level downgrade requires about $200 million of additional collateral. ( Lehman issued a statement this afternoon denying rumors it was forced to borrow money from the Federal government to support its business operations - just like Bear Stearns did)As of Feb. 29, and its qtrly filing with the SEC , its trading partners could have demanded $4.3 billion of collateral from the company, according to its filing. Lehman report Q2 in 2 weeks - expect a loss.

As a consequence of the re-grades the banks will need to sell more stock to help offset the charges. S&P say financial institutions have raised too much capital in the form of so-called hybrid securities, exceeding S&P's limits on such instruments.

The best estimates are that the biggest banks and securities firms have booked about US$387 billion of writedowns and credit losses since the beginning of last year, as the collapse of the subprime mortgage market prompted a contraction in credit markets worldwide. So far, the firms have raised about US$270 billion of capital.

Sanford Bernstein analyst Brad Hintz , a former chief financial officer at Lehman, lowered his second-quarter earnings estimates for Lehman to 15 cents a share from $1.38 last week after the firm said it suffered losses on hedge positions.

You can be certain that the stated write downs are underestimates - most banks balance sheets could be entered for the Booker Prize for Fiction.

Charlotte based Wachovia in deep doo doo

Wachovia reported a first-quarter net loss of $708 million, or 36 cents per share. In the same period last year, the company earned $2.3 billion, or $1.20 per share. Yesterday the bank announced Ken Thompson had retired as chief executive at the request of the company's board.

The stock, which closed Monday at US $23.40 per share, dipped to a 52 wek lowof US$21.04 per (52 week high of US$54) share today and closed at US21.92

Try this "Wall Street Wail" www.redhotjazz.com/songs/ellington/WallStreetWail2.ram The Duke Ellington Jungle Band, recorded Dec 10, 1929

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