UPDATE 1-Goldman, Lehman outlooks cut to 'negative' by S&P

(Recasts; adds S&P analyst comments, background, byline)

By Jonathan Stempel

NEW YORK, March 21 (Reuters) - Goldman Sachs Group Inc's (GS.N: Quote, Profile, Research) and Lehman Brothers Holdings Inc's (LEH.N: Quote, Profile, Research) credit rating outlooks were cut on Friday by Standard & Poor's, which said volatile markets could result in lower profit and revenue.

S&P revised its outlook to "negative" from "stable" on Goldman's "AA-minus" and Lehman's "A-plus" long-term credit ratings, suggesting a possible downgrade in one to two years.

The ratings are S&P's fourth- and fifth-highest investment grades, respectively. Lower credit ratings can result in higher borrowing costs.

Goldman is the largest Wall Street investment bank by market value, and Lehman is the fourth-largest. Goldman did not immediately return calls seeking comment. Lehman spokeswoman Kerrie Cohen declined to comment.

Banks have suffered from lower earnings and share prices as the housing crisis, a slowing economy and worries about credit quality led investors to stop buying a wide range of riskier securities. This has cut into revenue from trading, arranging debt offerings, and advising on mergers.

Several banks have also been cutting jobs, and Bear Stearns Cos BSC.N agreed last Sunday to a $2-per-share buyout by JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) after a cash crisis.

S&P still has a negative outlook on Merrill Lynch & Co's (MER.N: Quote, Profile, Research) "A-plus" credit rating, and expects to decide within 30 days whether to downgrade Morgan Stanley's (MS.N: Quote, Profile, Research) "AA-minus" rating. The credit rating agency said net revenue in the industry may decline 20 percent to 30 percent this year.