Three Wall Street giants downgraded

The investment banking business is getting riskier

Credit-rating agency Standard & Poor's (S&P) has downgraded its assessment of three of Wall Street's mightiest firms.

S&P revised from "stable" to "negative" its outlooks for Morgan Stanley Dean Witter, Goldman Sachs and Merrill Lynch.

The recent weak performance of financial markets, especially technology stocks, has eaten into the main business of these firms, the agency said.

"The world is changing for institutional investment banks," said S&P in a statement.

"Their underwriting prowess and advisory expertise are no longer sufficient to win attractive fees from their corporate clients.

"The longer this slump continues, the greater the pressure on institutional securities firms to extend credit to maintain overall business activity."

Earnings worries

Merrill Lynch is among the swathe of US firms due to unveil its earnings this week.

Markets have performed poorly

Results among US finance houses released on Monday were mixed: although giant Citigroup demonstrated a 13% year-on-year growth in profit, smaller rival Bank of America saw earnings slide by 2%.

In the first half of this year, amid a decline in lucrative merger underwriting and initial public offerings, total fees around the US investment banking industry fell to $6bn (£4.3bn), from $6.6bn in the same period of last year, according to Thomson Financial Securities Data.

Shares in all three fell sharply on the news.

In mid-afternoon trading, Goldman Sachs stock was down by 3.7%, Morgan Stanley by 5.4% and Merrill Lynch by 2.5%.