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