Fitch Affirms Goldman Sachs' Ratings at 'A/F1'; Outlook Stable

  Fitch Affirms Goldman Sachs' Ratings at 'A/F1'; Outlook Stable  Business Wire  NEW YORK -- March 26, 2014  Fitch Ratings has affirmed The Goldman Sachs Group, Inc.'s (Goldman) Issuer Default Rating (IDRs) at 'A/F1', support rating at '1', support rating floor (SRF) at 'A' and viability rating (VR) at 'a'. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release.  The rating actions on Goldman have been taken in conjunction with a periodic review of the Global Trading and Universal Banks, which comprise 12 large and globally active banking groups. Fitch's outlook for the sector is stable on balance. Earnings pressure in securities businesses and continued conduct and regulatory risks present in the GTUBs are offset by stronger balance sheets as capitalization and liquidity remain sound. Fitch forecasts stronger GDP growth in most economies, which should contribute to a more balanced operating environment, but the operating environment is likely to remain challenging in 2014.  Today's rating actions assume that Goldman will perform adequately under the CCAR stress test, though Fitch has no visibility into any potential qualitative rejections for Goldman, or any of the other 29 banks subject to regulatory stress testing. Although a qualitative rejection of a capital plan request under CCAR would be viewed negatively, it is not expected to have any rating implications for Goldman.  KEY RATING DRIVERS - IDRs, VR AND SENIOR DEBT  Goldman's IDRs, VR and senior debt continue to be supported by its leading investment banking franchise, solid liquidity position, better-than-average capital position, and strong risk management. The ratings are constrained by Goldman's focus on capital market activities and relatively higher level of wholesale funding.  Goldman has higher reliance on capital market operations than many global trading and universal banks (GTUBs). Fitch recognizes that capital market revenues are inherently volatile and susceptible to declines in difficult market periods. Concerns over this inherent volatility are offset by management's successful track record in managing through difficult periods.  Fitch believes that Goldman has a comparatively strong risk management organization and systems to manage and monitor risk as demonstrated by its ability to manage risk during period of market stress.  Goldman has consistently maintained liquidity at conservative levels, which is viewed as appropriate given the company's reliance on wholesale funding. Unencumbered highly liquid securities and cash was $184 billion (20% of total assets) at year end 2013. Goldman's reliance on unsecured short-term funding continues to be modest and the weighted average maturity of secured funding remained constant during 2013.  Goldman's capital position continues to improve and remains comparatively strong. Fitch Core Capital to risk-weighted assets remained higher than the GTUB average. Goldman's Tier I common ratio under the Basel III advanced approach was approximately 9.8% at year-end 2013 (in line with the average of U.S. GTUBs).  Regulatory and legal issues appear manageable. Goldman and peers face new capital markets regulations such as the Volcker Rule and implementation of Basel III capital and liquidity standards. Goldman is projected to meet new requirements well within allowable time frames.  RATING SENSITIVITIES - IDRs, VR AND SENIOR DEBT  Goldman's IDRs, VR and senior debt continue to be underpinned by its leading investment banking franchise, solid operating profitability, strong risk management, comfortable liquidity position and better-than-average capital position. The ratings factor in Fitch core capital in line with current levels and the management of capital comfortably above Basel III capital minimums. The IDRs, VR and senior debt have limited upward potential, given Goldman's business focus on the capital markets.  Downward pressure on the VR could result from a material loss, significant increase in leverage or deterioration in liquidity levels. Similarly, any unforeseen outsized or unusual fines, settlements or charges levied could also have adverse rating implications. Goldman's Long-term IDR could be negatively pressured if both its financial profile deteriorates (reflected in the VR) and Fitch's view of support of U.S. G-SIFIs change.  KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATIING FLOOR  Goldman's Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's expectation that there remains an extremely high probability of support from the U.S. government ('AAA'/ Outlook Stable) if required. This expectation reflects the U.S.'s extremely high ability to support its banks especially given its strong financial flexibility, though propensity is becoming less certain. Specific to Goldman, our view of support likelihood is based mostly on its systemic importance in the U.S., its global interconnectedness given its size and operations in global capital markets, and its position as a key provider of financial services to the U.S. economy. Goldman's IDRs and senior debt ratings do not benefit from support because Goldman's VR is equal to its SRF.  However, in Fitch's view, there is a clear intention to reduce support for G-SIFIs in the U.S., as demonstrated by the Dodd Frank Act (DFA) and progress regulators have made on implementing the Orderly Liquidation Authority (OLA). The FDIC has proposed its single point of entry (SPOE) strategy and further initiatives are demonstrating the U.S. government's progress to eliminate state support for U.S. banks going forward, which increases the likelihood of senior debt losses if its banks fall afoul of solvency assessments.  KEY RATING SENSITIVITIES - SUPPORT RATING AND SRF  The SR and SRF are sensitive to progress made in finalizing the SPOE strategy and any additional regulatory initiatives that may be imposed on the G-SIFIs, including debt thresholds at the holding company. Fitch's assessment of continuing support for U.S. G-SIFIs has to some extent relied upon the feasibility of OLA implementation rather than its enactment into law (when DFA passed). Hurdles that remain include the resolution of how cross-border derivative acceleration/termination provisions are handled and that there is sufficient contingent capital at the holding company to recapitalize without requiring government assistance.  Fitch expects that the SPOE strategy and regulatory action to ensure sufficient contingent capital will be finalized in the near term, but regardless of its finalization Fitch believes that sufficient regulatory progress continues to be made over the ratings time horizon. Therefore, Fitch expects to revise Goldman's Support Rating to '5' and its SRF to 'No Floor' within the next one to two years, likely to be some point in the late 2014 or in 1H15.  A revision of the SRF to 'No Floor' would result in no change to Goldman's Long-term IDR and debt ratings because Goldman's viability rating is equal to the current SRF.  RATING DRIVERS AND SENSITIVITIES -SUBORDINATED DEBT AND OTHER HYBRID SECURITIES  Subordinated debt and other hybrid capital issued by Goldman and by various issuing vehicles are all notched down from Goldman's VR in accordance with Fitch's assessment of each instrument's respective nonperformance and relative Loss Severity risk profiles. Their ratings are primarily sensitive to any change in Goldman's VR.  RATING DRIVERS AND SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS  Goldman's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default. However, Goldman's uninsured deposits outside of the U.S. do not benefit from rating uplift because they do not typically benefit from the U.S. depositor preference unless the deposit is expressly payable at an office of the bank in the United States. Since Fitch cannot determine which foreign branch deposits may be dually payable, they do not get the rating uplift.  The ratings of long and short-term deposits issued by Goldman and its subsidiaries are primarily sensitive to any change in Goldman's IDR.  RATING DRIVERS AND SENSITIVITIES - HOLDING COMPANY  Goldman's IDR is equalized with those of its operating companies and banks, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries, as well as the use of the holding company to fund subsidiary operations.  RATING DRIVERS AND SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANIES  IDRs of major rated operating subsidiaries are equalized with Goldman's IDR reflecting Fitch's view that these entities are core to Goldman's business strategy and financial profile.  Goldman is a top global bank with four business segments: investment banking, institutional client services, investment management, and investing and lending. Goldman, in September 2008, converted to a bank holding company regulated by the Federal Reserve Board. Goldman is designated as a G-SIFI by the Financial Stability Board.  The following ratings were affirmed:  Goldman Sachs Group, Inc.  --Long-term IDR at 'A' with a Stable Outlook;  --Long-term senior debt at 'A';  --Viability Rating at 'a';  --Short-term IDR at 'F1';  --Commercial paper at 'F1';  --Support at '1';  --Support Floor at 'A';  --Market linked securities at 'Aemr';  --Subordinated debt to 'A-';  --Preferred equity at 'BB+';  --Senior unsecured Chilean Bond Issuance Programme at 'AAA(cl)'.  Goldman Sachs Bank, USA  --Long-term IDR at 'A' with a Stable Outlook;  --Long-term senior debt at 'A';  --Long-term deposits at 'A+';  --Short-term IDR at 'F1';  --Short-term debt at 'F1';  --Short-term deposits at 'F1';  --Support at '1'.  Goldman, Sachs & Co.  --Long-term IDR at 'A' with a Stable Outlook;  --Short-term IDR at 'F1';  --Long-term senior debt at 'A';  --Short-term debt at 'F1'.  Goldman Sachs International  --Long-term IDR at 'A' with a Stable Outlook;  --Short-term IDR at 'F1';  --Senior secured long-term notes at 'A';  --Senior secured short-term notes at 'F1';  --Short-term debt at 'F1'.  Goldman Sachs International Bank  --Long-term IDR at 'A' with a Stable Outlook;  --Short-term IDR at 'F1'  --Long-term deposits at 'A';  --Short-term deposits at 'F1'.  Goldman Sachs AG  --Long-term IDR at 'A' with a Stable Outlook;  --Short-term IDR at 'F1';  Goldman Sachs Bank (Europe) plc  --Senior secured guaranteed debt at 'A';  --Short-term secured guaranteed debt at 'F1';  --Short-term debt at 'F1'.  Goldman Sachs Paris Inc. et Cie.  --Long-term IDR at 'A' with a Stable Outlook;  --Short-term IDR at 'F1'.  Ultegra Finance Limited  --Long-term senior debt at 'A';  --Short-term debt at 'F1'.  Global Sukuk Company Limited  --Long-term senior unsecured at 'A';  --Short-term senior unsecured at 'F1'.  Goldman Sachs Financial Products I Limited  --Long-term senior unsecured at 'A'.  Goldman Sachs Capital I  --Trust preferred at 'BBB-'.  Goldman Sachs Capital II, III  --Preferred equity at 'BB+'.  Murray Street Investment Trust I  --Senior Guaranteed Trust Securities 'A'.  Vesey Street Investment Trust I  --Senior Guaranteed Trust Securities 'A'.  Fitch will hold a teleconference to discuss sovereign support for banks and give an update on rating paths on Friday, March 28 at 15:00 GMT.  Callers must register in advance using the link below and are requested to dial in early:  Additional information is available at ''. The ratings were unsolicited and have been provided by Fitch as a service to investors.  In addition to the source(s) of information identified in Fitch's Master Criteria, these actions were additionally informed by information provided by the companies.  Applicable Criteria and Related Research:  --Global Financial Institutions Rating Criteria (Jan. 31, 2014)  --Securities Firms Criteria (Jan. 31, 2014)  --Assessing and Rating Bank Subordinated and Hybrid Securities (Jan. 31, 2014)  --Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012)  --The Evolving Dynamics of Support for Banks (Sept. 11, 2013)  --Bank Support: Likely Rating Paths' (Sept. 11, 2013)  --Sovereign Support for Banks: Update On Position Outlined In 3Q13 (Dec. 10, 2013)  --2014 Outlook: U.S. Banks (Nov. 21, 2013)  --2014 Outlook: U.S. Securities Firms (Nov. 21, 2013)  --Global Trading and Universal Banks - Periodic Review (Dec. 12, 2013)  --Fitch Fundamentals Index - U.S.; Index Trend Analysis 4Q13 (Jan. 15, 2014)  --U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) (Jan. 27, 2014)  --U.S. Banking Capital Market Update: 4Q13 (Weak FICC Results Limit Overall Revenue Growth) (Jan. 28, 2014)  Applicable Criteria and Related Research:  Global Financial Institutions Rating Criteria  Securities Firms Criteria  Bank Support: Likely Rating Paths  Sovereign Support For Banks: Update on Position Outlined in 3Q13  2014 Outlook: U.S. Banks  2014 Outlook: U.S. Securities Firms (Capital and Liquidity Counterbalance Challenging Market Conditions)  Global Trading and Universal Banks - Periodic Review  Fitch Fundamentals Index  U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain)  U.S. Banking Capital Market Update: 4Q13 (Weak FICC Results Limit Overall Revenue Growth)  Assessing and Rating Bank Subordinated and Hybrid Securities Criteria  Rating FI Subsidiaries and Holding Companies  The Evolving Dynamics of Support for Banks  Additional Disclosure  Solicitation Status  ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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One State Street Plaza New York, NY 10001 or Secondary Analyst Ilya Ivashkov, CFA Senior Director +1-212-908-0769 or Committee Chairperson Gordon Scott Managing Director + 44 20 3530 1075 or Media Relations Brian Bertsch, +1 212-908-0549  
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