Fitch: The Long-Term Goldman-Effect

Fitch Ratings says in a newly released statement that the law suits against Goldman Sachs probably will have little impact on the company’s financial strength on a short term basis. The rating agency, however, expects the case to have a long term negative impact on the financial industry as a whole.

“A free market was never meant to be a free license to take whatever you can get, however you can get it.”

Barack Obama


The European rating agency Fitch have released a statement in where they argue that the legislation against Goldman Sachs probably will have little impact on the company’s financial strength. Fitch therefore maintain their rating on Goldman. The rating agency, however, says that the case is likely to gain momentum for the financial reform and that the law suit could potentially have “material adverse implications” on future revenue streams and ratings for many financial institutions.

“Fitch believes this case is part of broader reviews being conducted by various regulatory bodies including the SEC, and Fitch would not be surprised to see other cases filed in the future against other arrangers of CDOs, particularly CDOs backed by structured finance assets issued before the financial crisis began,” the rating agency writes.

Fitch is taking no action on the existing ratings of Goldman at this time (current long and short-term Issuer Default Ratings are ‘A+/F1+’).

But Fitch underline that they will monitor the development closely:

“Fitch views Goldman as maintaining a more de-levered balance sheet and strong revenue generating capacity which will allow the company to absorb any potential monetary fine or settlement (including full restitution to impacted parties) which may come from this suit. Over the near-to-intermediate term, Fitch will monitor if this adverse publicity will impact Goldman’s standing with its clients or its unfettered access to the capital markets, and if so, what implications that may have.”

“Longer-term, Fitch will be closely monitoring the implications of this suit and how it will impact Goldman and other major capital market participants. To the extent that it portends greater regulation or restrictions on the business models of Goldman or other capital market banks, this suit could potentially have material adverse implications on future revenue streams and ratings,” the agency says.

“At the present time, there is regulatory reform under consideration that could significantly curtail some of Goldman’s core business activities. Reforms that would lead to higher capital requirements, central clearing of derivatives, and restricted proprietary trading activities are key legislative items that could adversely impact Goldman’s current business model and franchise revenues. The extent of the breadth and depth of regulatory changes that are ultimately adopted through the regulatory reform legislation is still uncertain; however Fitch believes this action against Goldman could help build momentum toward the passage of a reform package that is more restrictive than was originally anticipated by many market participants. In addition, given the scrutiny to which bank capital market activities are currently being subjected, Fitch expects to see the industry respond with a tightening of its risk management practices. One likely outcome of this will be that capital market banks are going to require a more consistent elevation of approvals and reviews on complex activities in the years ahead,” Fitch Ratings says in the statement.

“Furious Effort of Industry Lobbyists”

At noon today the U.S. President, Barack Obama,  spoke to an audience that included many from the financial sector at Cooper Union in New York City, a place where he spoke about reforming Wall Street and financial institutions two years ago:

“As I said on this stage two years ago, I believe in the power of the free market. I believe in a strong financial sector that helps people to raise capital and get loans and invest their savings. That’s part of what has made America what it is. But a free market was never meant to be a free license to take whatever you can get, however you can get it. That’s what happened too often in the years leading up to this crisis. Some — and let me be clear, not all — but some on Wall Street forgot that behind every dollar traded or leveraged there’s family looking to buy a house, or pay for an education, open a business, save for retirement. What happens on Wall Street has real consequences across the country, across our economy,” Obama said.

The President applauded the House for having passed reforms, and the Senate for working through their own version, despite “the furious effort of industry lobbyists to shape this legislation to their special interests”

Here’s the full transcript of  Barack Obama’s speech in New York.

Related by the Econotwist:

Will The Goldman-Case Kill The OTC Market?

Conquering The Devil

Goldman’s Collateralized, Securitized And Synthesized Fraud

Obama: “It Is Time”

Goldman Sachs Charged With Fraud – Here’s The SEC filing

Who’s Hiding In The Sherwood Forrest?

U.S. Covered Bond Legislation: Same Shit – New Wrapping?

E.U. Lobbyists Complains Over Unfair Treatment

E.U. Defends Hedge Fund Plans after Geithner’s Warning

Sarkozy, Brown Fails To Agree On Hedge Fund Rules

77% of Senior Bankers Expect Another Financial Crisis by 2015

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