Earnings pressures continue for global investment banks And brokers

07 August 2008: As the downturn in the credit cycle enters its second year, challenging business conditions and substantial write-downs continue to weigh on global investment banks' and brokers' financial performance–-and these are still placing ongoing pressure on ratings, according to a report published by Standard & Poor's Ratings Services. The report, titled "Earnings Pressures Continue Through Second Quarter For Global Investment Banks And Brokers," discusses the second-quarter earnings of the major investment houses. Reported results remained broadly weak, but with an unusually wide dispersion.

"We believe second-quarter results underscore the concerns we expressed in our sector review," said Standard & Poor's credit analyst Scott Sprinzen.

In concluding its review, on June 2, Standard & Poor's lowered its ratings on three of the four independent U.S. broker-dealers--Morgan Stanley (A+/Negative/A-1), Merrill Lynch & Co. Inc. (A/Negative/A-1), and Lehman Brothers Holdings Inc. (A/Negative/A-1)--while affirming its ratings on the fourth, The Goldman Sachs Group Inc. (AA-/Negative/A-1+). We subsequently lowered the ratings on Deutsche Bank AG (AA-/Negative/A-1+). Outlooks are currently negative across the sector.

"Setting aside write-downs and focusing on the securities-related segments of these companies, business conditions remain difficult-–but not worse than we had previously assumed," said Mr. Sprinzen.

Write-downs on holdings of subprime and other mortgage loans, asset-backed collateralized debt obligations, residential mortgage-backed securities, commercial mortgage-backed securities, and leveraged finance loans and lending commitments have substantially--but variably--affected the financial performance of these firms.

After a very rough March, market valuations seemingly stabilized in April and May. However, June saw a return of severe pressures, partially reflecting heightened anxiety about the state of the U.S. housing market and of the general economy.

(This is press release of Standard & Poor's)

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