The deal reached between Congressional Democrats and Republicans to lift the U.S. debt ceiling was greeted as good news on Wall Street. But the deal--unfortunately--did not render a debt downgrade out of the question. It's still quite possible that the debt will be downgraded from triple-A if the deficit reduction plans are deemed not consequential enough.

So what effect will that have on the biggest broker dealers? The esteemed Sanford Bernstein analyst Brad Hintz has written a note to clients suggesting that the FICC operations of Goldman Sachs and Morgan Stanley could be hit. As quoted by TheStreet.com: "We believe that both MS' and GS' FICC divisions will face a challenging trading environment for a short term period, until the yield curve stabilizes and credit spreads adjust. This environment will negatively impact trading revenue, repo financing and debt capital markets activity."

He added: "We note that a U.S. downgrade would not be a surprise to the market and therefore market participants have been preparing their desks and positioning their trading inventory in anticipation of this potential. We therefore would not expect the downgrade to have as significant an impact as the 1998 Russian default, which reduced FICC revenues by 35.8% from peak to trough."

This of course adds yet another complication to the earnings picture. Then again, if the ultimate deficit reduction deal is seen a sufficient, might the big dealers get a pop?

For more:
- here's the article

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