S&P Slashes Ratings of Major U.S. Securities Firms

Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. had their credit ratings cut on Monday by Standard & Poor's on concerns that continued weakness in the sector could lead to more write-offs.

Morgan Stanley, the second-biggest U.S. securities firm by market value, was lowered to A+ from AA-, S&P said today in a report. Merrill Lynch, the third-biggest firm, was cut to A from A+, as was Lehman Brothers, the fourth-biggest firm.

The outlooks on the large financial institutions sector in the U.S. are now predominantly negative, the credit rating agency said in a statement.

The agency also said it may cut ratings on Bank of America and JPMorgan Chase Co. as the weak economy is affecting consumer lending operations and mortgage losses may increase at those banks.

The negative actions reflect prospects of continued weakness in the investment banking business and the potential for more write-offs, though not of the magnitude of those of the past few quarters,'' said Tanya Azarchs, an S&P analyst, in a statement.

S&P also said it might downgrade Wachovia Corp and revise outlooks to negative on Bank of America Corp and JPMorgan Chase. The outlook is an indication of the likely direction of the rating over the next two years.

Meanwhile, the agency removed Citigroup from CreditWatch negative, affirming its ratings, and also changed its outlook to negative, and gave a stable outlook for Wells Fargo & Co.

The negative actions reflect prospects of continued weakness in the investment banking business and the potential for more write-offs, though not of the magnitude of those of the past few quarters, S&P said.

In afternoon trading, shares of Lehman Brothers were down $2.37, or 6.4 percent, at $34.44. Merrill Lynch lost $1.29, or 3 percent, to $42.63. Morgan Stanley fell $1.66, or 3.8 percent, to $42.58. Bank of America dropped 58 cents to $33.43, and Citi lost 47 cents, or 2.15 percent, at $21.42. Wells Fargo also fell 53 cents to $27.04