Bloomberg reports that the firm run by Howard Lutnick, which has increased the amount of money it commits to buy and sell bonds, was downgraded to Ba1, the highest level of speculative grade, Moody’s said Thursday in a statement. Moody’s said it expects 'the capital markets operating environment to be challenging for all participants for the medium term'.
Lutnick has been hiring to expand in capital markets and grow outside the U.S. as a decline in trading pressures profits at its brokerage unit. While the New York-based company is diversifying revenues by adding new business, its compensation expenses have 'remained stubbornly high, resulting in only modest profitability', Moody’s said.
'It certainly makes it difficult to expand a company in the face of a significant downgrade', Brad Hintz, an analyst at Sanford C. Bernstein & Co., said in an e-mail. 'A non-investment-grade rating for a broker is not a death sentence, but the lower rating will limit financing alternatives and reduce the willingness of counterparties to deal with a firm'.
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