Fitch Downgrades Goldman Sachs' L-T IDR to 'A'; Outlook Now Stable

15 December 2011

Fitch Ratings has downgraded The Goldman Sachs Group, Inc.'s (Goldman) long-term Issuer Default Rating (IDR) to 'A' from 'A+', the viability rating (VR) to 'a' from 'a+' and the short-term IDR to 'F1' from 'F1+'. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release.

These actions culminate a broader, global review of financial institutions. Fitch has taken actions on several issuers globally, including several global trading and universal banks (GTUBs) that were put on Rating Watch Negative in October. For additional details on these actions, refer to 'Fitch Downgrades Viability Ratings of Eight Global Trading and Universal Banks'.

Goldman's VR downgrade reflects challenges faced by the sector as a whole, rather than negative developments in idiosyncratic fundamental creditworthiness. Assigned ratings for Goldman, in sum, also consider peer differentiation in relation to business fundamentals, capitalization, liquidity strength and market position.

The downgrade of Goldman's IDRs reflects the company's challenged earnings prospects given the uncertain global economic environment and the cost of increased regulation over the near to intermediate term. Less robust earnings could impact the firm's capital generation. Goldman relies significantly on trading revenues, more so than many of its peer GTUBs, which are more volatile than other more traditional banking activities. Many of its activities are also expected to carry higher risk weights under Basel III, making these activities potentially less profitable going forward.

Ultimately, higher capital requirements, central clearing of derivatives, restricted proprietary trading and investment activity result in a potentially more conservative risk profile for Goldman and peers, which is a benefit to debt holders. However, the costs to comply with these rules will add to margin pressure and earnings over time will conceivably be lower.

Today, Goldman is primarily wholesale funded, which Fitch believes makes it more vulnerable to funding and rollover risks than its GTUB peers. While all GTUBs are susceptible to confidence sensitivity, the risk for investment banks can be more acute during periods of market-wide dislocation or idiosyncratic company-specific stress. Mitigating this risk is the fact that the company is now a financial holding company regulated by the Federal Reserve Bank, which provides access to contingent funding programs.

In addition to the aforementioned rating actions, Fitch upgraded Goldman's support rating to '1' and its support rating floor to 'A'. This action acknowledges that Goldman was recently designated a global systemically important financial institution (G-SIFI). Fitch has determined that an expectation of future extraordinary capital support would be less likely than that previously received.

However, for the foreseeable future, Fitch is likely to maintain its view of support for U.S. based G-SIFIs given the still fragile state of the global financial markets. For more details on Fitch's rationale on its support ratings and support floors, please refer to 'U.S. Banks -- Sovereign Support: When Does it End' dated Dec. 15, 2011.

The Stable Outlook reflects the firm's solid liquidity position and reduced balance sheet leverage, which positions the firm to more effectively withstand a weaker market environment. The current rating level also acknowledges Goldman's leading global investment banking franchise, as well as strong risk management culture.

The firm has taken several positive steps to strengthen its liquidity profile so that it can withstand meaningful market stresses. Goldman maintains excess liquidity in the form of its global core excess against stressed liquidity outflows. The firm also has a more liquid balance sheet and has extended its maturity profiles.

Any material losses, significant increase in leverage for more than a few quarters or liquidity deterioration would likely result in downward rating pressure. Likewise, any unforeseen outsized or unusual fines, settlements or charges levied could also have adverse ratings implications.

Goldman's hybrid capital instruments (preferred securities) were downgraded in tandem with the lower long-term IDR. The Rating Watch Negative that remains on the bank's hybrid securities reflects heightened downgrade risk. Resolution of this Rating Watch will occur upon completion of Fitch's pending review of its rating approach for bank regulatory capital and similar securities. This review was initiated by the exposure draft entitled 'Rating Bank Regulatory Capital Securities' published on July 28, 2011 and available at ''. All other debt instruments are removed from Rating Watch Negative.

The Goldman Sachs Group, Inc. is a top tier global bank, providing capital markets, financial advisory, asset management and securities services. The company is an active market maker in most global markets, facilitating trading on behalf of its customers, and also committing firm capital to investing and lending opportunities. Business activities are divided into four segments: (1) Investment Banking, (2) Institutional Client Services (3) Investing & Lending, and (4) Investment Management.

Fitch downgrades and removes the following ratings from Rating Watch Negative:

Goldman Sachs Group, Inc.

--Long-term IDR to 'A' from 'A+';

--Long-term senior debt to 'A' from 'A+'';

--Viability Rating to 'a' from 'a+';

--Short-term IDR to 'F1' from 'F1+';

--Commercial paper to 'F1' from 'F1+';

--Market linked securities to 'Aemr' from 'A+emr';

--Subordinated debt to 'A-' from 'A'.

Goldman Sachs Bank, USA

--Long-term IDR to 'A' from 'A+';

--Long-term senior debt to 'A' from 'A+';

--Long-term deposits to 'A+' from`AA-';

--Short-term IDR to 'F1' from 'F1+';

--Short-term debt to 'F1' from `F1+';

--Short-term deposits to 'F1' from `F1+'.

Goldman, Sachs & Co.

--Long-term IDR to 'A' from 'A+';

--Short-term IDR to 'F1' from 'F1+';

--Long-term senior debt to 'A' from 'A+';

--Short-term debt to 'F1' from 'F1+'.

Goldman Sachs International

--Senior secured long-term notes to 'A' from 'A+';

--Senior secured short-term notes to 'F1' from 'F1+'.

Goldman Sachs Bank (Europe) plc

--Senior secured guaranteed debt to 'A' from 'A+';

--Short-term secured guaranteed debt to 'F1' from 'F1+';

--Short-term debt to 'F1' from 'F1+'.

Goldman Sachs Paris inc. et Cie.

--Long-term IDR to 'A' from 'A+';

--Short-term IDR to 'F1' from 'F1+'.

Ultegra Finance Limited

--Long-term senior debt to 'A' from 'A+';

--Short-term debt to 'F1' from 'F1+'.

Global Sukuk Company Limited

--Long-term senior unsecured to 'A' from 'A+';

--Short-term senior unsecured to 'F1' from 'F1+'.

Goldman Sachs Financial Products I Limited

--Long-term senior unsecured to 'A' from 'A+'.

The Outlook is Stable.

Fitch downgrades and maintains the following ratings on Rating Watch Negative:

Goldman Sachs Group, Inc.

--Preferred equity to 'BBB+' from 'A-'.

Goldman Sachs Capital I

--Trust preferred to 'BBB+' from 'A-'.

Goldman Sachs Capital II, III

--Preferred equity to 'BBB+' from 'A-'.

Fitch upgrades the following:

Goldman Sachs Group, Inc.

--Support to '1' from '5';

--Support Floor to 'A' from 'NF'.

Fitch affirms the following:

Goldman Sachs Group, Inc.

--Senior unsecured debt FDIC at 'AAA'.

--Short-term debt FDIC guaranteed at 'F1+';

--Individual at 'B/C'.

Goldman Sachs Bank, USA

--Senior unsecured debt FDIC at 'AAA';

--Short-term debt FDIC guaranteed at 'F1+';

--Support at '1'.

The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Criteria' (Aug. 16, 2011);

--'Securities Firms Criteria' (Aug. 16, 2011);

--'Rating Banks in a Changing World' (Oct. 13, 2011);

--'Fitch Downgrades Viability Ratings of Eight Global Trading and Universal Banks' (Dec. 15, 2011);

--'U.S. Banks -- Sovereign Support: When Does it End' (Dec. 15, 2011).

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