DBRS Downgrades Goldman Sachs to A (high); Trend Revised to Negative

DBRS has today downgraded all long-term ratings for Goldman Sachs (Goldman or the Company) and related entities, including its Issuer & Senior Debt rating to A (high) from AA (low). The trend on all long-term ratings is Negative. At the same time, DBRS has confirmed Goldman’s Short-Term Instruments rating of R-1 (middle) with a Stable trend. The Company’s ratings were placed Under Review with Negative Implications on December 17, 2008 following the Company’s announcement of a net loss for its fiscal Q4 2008, which ended in November.

The downgrade of the long-term rating reflects the impact of the more challenging operating environment that has reduced the Company’s earnings prospects from the levels and stability associated with the prior rating level. In the near term, revenues are likely to be constrained given the slowdown in activity, particularly in some segments of the markets. The Company is also adapting its mix of business to reflect the new environment that has put a greater premium on increased liquidity and lower leverage. In adapting its business, DBRS sees a range of benefits from the Company’s conversion of its bank charter to a commercial bank. Although the Company has already succeeded in reducing leverage and improving its capitalization, disrupted markets and the sharp economic downturn have also increased uncertainty and the required level of capitalization. DBRS also recognizes that there could be some regulatory constraints on Goldman’s activities as a bank holding company – although no more than any broker dealer housed within existing universal bank holding companies – but DBRS sees significant benefits from this status in market perceptions and enhanced access to liquidity. Under various government programs, the Company is benefiting from explicit support through capital purchases and enhanced access to liquidity, which is reflected in the Stable trend for the short-term rating.

While the Company’s underlying revenues held up in 2008 and earnings remained positive for the year, the Negative trend reflects DBRS’s concern that the Company faces a challenging environment in which to adapt its diverse businesses, sustain its revenues and cope with the potential impact of adverse market movements on its legacy positions. With strong results still being generated in some businesses, the diversity of Goldman’s business lines has been an important factor supporting its overall revenues. Indications of a significant weakening in the Company’s franchise or its ability to generate sustainable earnings would very likely lead to a downgrade. While positive earnings would lessen the pressure on the ratings indicated by the Negative trend, the strength of the underlying trends would need to be well established and the overall operating environment would need to show significant improvement for the rating to revert to Stable.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Securities Firms Operating in the United States, which can be found on our website under Methodologies.

This is a Corporate rating.