Goldman, Lehman debt warning issued

NEW YORK — Standard & Poor’s warned Friday of possible downgrades of the debt of Wall Street giants Goldman Sachs Group Inc. and Lehman Bros. Holdings Inc., saying volatile markets could hurt the investment banks’ earnings.

S&P; revised its outlook to “negative” from “stable” on Goldman’s “AA-minus” and Lehman’s “A-plus” long-term debt ratings, suggesting a possible downgrade in one to two years.

The ratings are S&P;’s fourth- and fifth-highest investment grades, respectively. Lower ratings can result in higher borrowing costs.

Goldman is the largest Wall Street investment bank by market value, and Lehman is the fourth-largest. Goldman did not immediately return calls seeking comment. A Lehman spokeswoman declined to comment.

Among other Wall Street firms, S&P; already has a negative outlook on Merrill Lynch & Co.’s “A-plus” rating, and expects to decide within 30 days whether to downgrade Morgan Stanley’s “AA-minus” rating. The rating firm said revenue in the industry could decline 20% to 30% this year.

Investment banks have recorded lower earnings as the housing crisis, a slowing economy and worries about credit quality have led many investors to stop buying a wide range of riskier securities.

Several Wall Street firms also have been cutting jobs.

The fifth-largest Wall Street investment bank, Bear Stearns Co., agreed Sunday to a buyout by JPMorgan Chase & Co. at a fire-sale price after a cash crisis.

Although Goldman has very strong liquidity, S&P; said, its emphasis on trading and an aggressive appetite for risk expose it to potential for “major missteps.”

The rating firm said Lehman had a stable base of funding and strong fundamentals but could suffer severely if the market turns against it.

Goldman and Lehman shares closed Thursday down 16% and 26%, respectively, since the start of the year. But in the last three days, Goldman jumped 19% and Lehman soared 53%. The stock market was closed for Good Friday.