NEW YORK, Sept. 10 /PRNewswire/ -- Standard & Poor's Ratings Services' said today that its ratings, including the 'A' long-term and 'A-1' short-term counterparty credit ratings, on Lehman Brothers Holdings Inc., and ratings on all related entities remained on CreditWatch, where they were placed with negative implications on Sept. 9.
"We will continue to monitor the company for a possible downgrade following Lehman's just-announced larger-than-expected third-quarter loss and proposed asset sales to boost capital and reduce certain troubled asset exposures," said Standard & Poor's analyst Scott Sprinzen.
Lehman's expected loss for the quarter ended Aug. 31, 2008 -- a pretax loss of $7.2 billion (adjusted for debt valuation gains) -- is significantly larger than we had assumed as of June 2, 2008, when we lowered the long-term counterparty credit rating on the holding company to 'A' from 'A+'. Apart from business activity being broadly weak, the ongoing deterioration in the market valuation of Lehman's residential mortgage and commercial real estate assets resulted in gross mark-to-market adjustments totaling a massive $7.8 billion.
However, Lehman made significant progress during the quarter in reducing its holdings of such assets, and it has announced plans to continue accelerating the divestiture of remaining positions. This includes the spin-off of the majority of its remaining commercial real estate (CRE) assets to Lehman's shareholders and additional sales of portions of its residential mortgage portfolio.
Lehman is also pursuing a sale of a majority interest in certain units within its Investment Management division to offset the additional capital it will need to support the CRE spin-off.
"We continue to be concerned also about Lehman's longer range earnings potential, considering changes in its business mix, potential damage to its business franchise from recent turmoil, and uncertainty as to when market conditions might recover," said Mr. Sprinzen. "We continue to view Lehman's near-term liquidity as satisfactory, however."
We currently expect to resolve the CreditWatch review within 90 days.
Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at http://www.ratingsdirect.com/. All ratings referenced herein can be found on Standard & Poor's public Web site at http://www.standardandpoors.com/; select your preferred country or region, then Ratings in the left navigation bar, followed by Credit Ratings Search.
