Lets hope know one saw this over the weekend shhhhhh. S&P Flags Goldman, Lehman By JED HOROWITZ March 22, 2008; Page A15 Standard & Poor's, in a continuing sign of loss of confidence in investment banks' profitability, Friday put Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. on negative outlook, lowering them from stable. Although S&P didn't change the senior-debt ratings from AA-minus for Goldman and A-plus for Lehman Brothers, it brought its view of the likelihood of a precipitous decline in profits at the Wall Street firms during the next two years to the same negative levels it previously assigned to Merrill Lynch & Co. and Morgan Stanley. The changes in the ratings outlooks are appropriate despite the fact that recent actions by the Federal Reserve have instilled confidence in the capital markets, S&P added. "We believe that negative rating outlooks are broadly appropriate for the independent securities firms, reflecting the potential for a more substantial decline in profitability from capital-market activities," S&P said in a report whose principal authors are managing director Scott Sprinzen and analyst Diane Hinton. "Our current expectation is that net revenues could decline 20%-30% year-on-year" after write-downs. S&P previously said rating downgrades would be likely if it believed companies' balance sheets were being overloaded with assets that were deteriorating in value. Investment banks have written down more than $100 billion of securities and loans since the middle of last year and are still finding it hard to sell the assets to large investors. The ratings firm said that, even with the likely 20% to 30% decline in profitability that would erode banks' "margin of safety," it expects to sustain current debt ratings because the Fed last week said investment banks can now borrow at lower rates against some of their battered securities. "Nonetheless, we see some possibility, were there to be persisting capital-markets turmoil and sharply weakening economic conditions, that financial performance could deteriorate significantly more than we now assume, which would call the current ratings into question," S&P said. The company downgraded Merrill Lynch's senior debt to A-plus on Oct. 24 and put Morgan Stanley on CreditWatch with negative implications on Dec. 19. Morgan Stanley's senior debt is rated AA-minus. The "virtual collapse" of Bear Stearns Cos. last week "highlights the extent to which securities firms are exposed to capital-market sentiments and explains the Federal Reserve's actions to support the U.S. securities industry directly," S&P said. The Fed arranged for J.P. Morgan Chase & Co. to buy Bear, which S&P rates BBB, at $2 a share and guaranteed the bank against $30 billion of losses on Bear Stearns's problem assets. Write to Jed Horowitz at jed.horowitz@dowjones.com