Standard & Poor’s

  • 02 Jun 2008 at 1:59 PM
  • Banks

S&P Slashes Ratings On Lehman, Merrill and Morgan Stanley

So maybe trouble at Lehman Brothers isn’t just short-sellers spinning a web of financial panic after all. Standard & Poor’s cut the ratings of Lehman Brothers, as well as Merrill Lynch and Morgan Stanley today. Counterparty credit ratings, which have been getting a lot of attention lately, were one prong of the S&P credit analyst Tanya Azarchs critique of the banks. The weakness of investment banking business–IPOs off 70% and M&A down 40%, according to some estimates–and the potential for more write-offs didn’t help either.
Azarchs is also criticizing the brokerages’ much vaunted capital raising. A good portion of the money raised by the firms has been in so-called hybrid securities that combine equity and debt aspects. The ratings agencies are wary of these because certain debt-like covenants and payment obligations can impose increased cash flow stress on banks.
The stock prices have taking a beating and the credit-default swap spreads are getting wider.
The larger commercial banks also didn’t escape S&P’s negativity on the financial sector.

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Coffee versus Credit Ratings

coffeecup.JPGWe’ve got friends who argue that intellectual property protection in the US has gotten way out control—extended patents, lengthy copyrights, litigation without end. Most days we think the investment in innovation we get as a trade-off for these things make it worth it. Today isn’t one of those days.

Today’s big financial news comes straight from the Lone Star State, where financial powerhouse McGraw-Hill (NYSE: MHP – News) has sicced its legal eagles on … an upstart coffeehouse, of all things. Last week, McGraw-Hill subsidiary Standard & Poor’s (S&P) filed a lawsuit in federal court against “Standard & Pours Coffee & Stocks,” a Dallas purveyor of java, free copies of The Wall Street Journal, and live CNBC video.
In the suit, S&P alleges that Standard & Pours appropriated for itself a name just a bit too close to S&P’s own, causing customers to mistake the Texas coffeehouse for a long-lost subsidiary of the real S&P (shades of the 1998 case of Federal Express (NYSE: FDX – News) v. Federal Espresso). For infringing on its trademark, S&P demands the maximum compensation permitted by the U.S. Trademark Act: three times Standard & Pours’ profits, and three times any revenue S&P lost when customers sauntered into Standard & Pours, and accidentally bought a cup of coffee when what they really wanted was a credit report. (Doh!)

Tempest in a Coffee Pot
[Motley Fool]