Weak global economic conditions will continue to adversely impact revenues and profitability in a number of Goldman Sachs Group's major business lines such as debt underwriting, credit, and proprietary investments, according to Fitch Ratings, which has downgraded the long-term Issuer Default Rating (IDR), debt and outstanding credit ratings of Goldman Sachs Group, Inc. (Goldman) and subsidiaries.
While product diversity within the franchise has brought and should continue to bring some balance to revenue streams, Fitch expects that ongoing mark-to-market valuations on remaining high risk exposures combined with lower revenue prospects will hinder operating performance over the next several quarters.
In addition, because results generated by principal trading and investment activities are inherently unpredictable, they cannot be relied upon for core earnings, although Goldman has effectively managed funding and capital support for these business lines to date.
By limiting its exposure to subprime mortgages and related derivative instruments, Goldman has avoided the most severe valuation losses incurred by many other participants in the securitized mortgage arena. But its fourth quarter-2008 loss underscores the company's vulnerability to current market stresses.
During the period, the equity and credit markets experienced extreme volatility, illiquidity and asset price depreciation, resulting in negative net revenues in Fixed Income, Currencies and Commodities and Principal Investments. Going forward, sales and hedges will be tools likely employed to reduce exposures to high risk or illiquid assets. However, Fitch anticipates that weak investor appetite, tight liquidity and imperfect, costly hedges may limit the potential success of these strategies.
Sign up to learn more about Online Trading and tune into our Stock Radio Show, make sure you check out our Trading Videos! After that make sure you sign up for our Online Trading Community, then if you have time and still want more, subscribe to our Podcast on Itunesor through RSS.