Fitch cuts Lehman credit rating

NEW YORK (Reuters) - Fitch Ratings on Monday cut its credit ratings on Lehman Brothers Holdings Inc and Moody's Investors Service changed its outlook to negative, indicating a rating cut is likely after the investment bank said it expected a large second-quarter loss.

The move follows a downgrade of Lehman last week by Standard & Poor's, as part of a sector review of financial companies taking into account liquidity pressures in the industry.

Lehman said on Monday it sold $6 billion of stock and convertible securities to bolster its capital base as the company prepares to post a $2.77 billion quarterly loss after trading and hedging losses.

Fitch cited increased volatility in Lehman's earnings as a reason for the downgrade, in addition to changes in its business mix due to the contraction in the securitization markets and challenges in its hedging effectiveness.

Fitch cut Lehman's long-term issuer default rating one notch to "A-plus," the fifth-highest investment grade, from "AA-minus" and cut Lehman's short-term issuer default rating one notch to "F1," the second-highest rating, from "F1-plus."

The outlook is negative, indicating an additional rating cut is more likely over the next one to two years.

S&P on June 2 cut Lehman's long term rating to "A," the sixth-highest investment grade, from "A-plus."

Moody's affirmed Lehman's senior debt rating at "A1," the fifth-highest investment grade, but changed the outlook to negative, from stable, meaning the rating may move downward over the next 12 to 18 months, but the agency is not actively considering a downgrade.

Moody's said it welcomed Lehman's plans to raise $6 billion in capital as a positive step both to repair its balance sheet and to boost investor confidence. But it had concerns over risk management decisions that led to losses on hedges.

"Any additional net valuation marks that result in firm-wide losses in coming quarters would raise serious concerns about the effectiveness of Lehman's risk management and may create additional market unease about the firm, potentially weakening its franchise," the ratings agency said.

"As such, additional firm-wide losses would likely result in a downward rating action."

(Reporting by Karen Brettell; additional reporting by Richard Barley in London; Editing by Dan Grebler)