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Fitch: Legal Issues Threaten Goldman's Top Rating

Wednesday, 05 May 2010 12:39 PM

Fitch Ratings said Wednesday that Goldman Sachs' recent legal troubles and the evolving regulatory landscape might lead the agency to eventually review the bank's top-tier credit rating.

Fitch Ratings, a major credit ratings agency, said in a release that it left Goldman Sachs Group Inc.'s rating of "A plus" alone for now given its strong performance. Fitch noted that Goldman "consistently" outperforms its global banking peers.

However, Fitch said it lowered its long-term view of Goldman's debt ratings because of the legal issues Goldman is facing, which could hurt its reputation and ability to generate revenue.

"Goldman's franchise and market position are potentially vulnerable to scrutiny by stakeholders" and, like its peers, "may be affected by the industry's regulatory evolution," Fitch said in a statement.

A spokesman for Goldman declined to comment. Investors seemed to show little concern about Fitch's view. Goldman shares rose $1.25 to $150.70 in afternoon trading.

Congress is currently debating a potential overhaul of financial regulations that could include restricting trading by big Wall Street banks. Goldman Sachs was one of the most profitable banks throughout the credit crisis and during the ongoing recovery. It has used what some consider aggressive trading strategies to increase earnings.

Such strategies have resulted in scrutiny by the Securities and Exchange Commission. The SEC accused Goldman of fraud in its dealings of mortgage securities that it created before the credit crisis erupted. Many blame risky securities like those tied to subprime mortgage securities for worsening the financial crisis.

The Justice Department has opened a criminal investigation in Goldman's packaging of the securities.

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Fitch Ratings said Wednesday that Goldman Sachs' recent legal troubles and the evolving regulatory landscape might lead the agency to eventually review the bank's top-tier credit rating.Fitch Ratings, a major credit ratings agency, said in a release that it left Goldman...
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