May 30 - Fitch views the shift toward held for investment (HFI) loan accounting disclosed by both Goldman Sachs (GS) and Morgan Stanley (MS) as having limited immediate impact on their financial results, given that the change applies largely to new lending commitments and even a subset within them. Furthermore, we do not believe there is a meaningful impact on the credit profiles of GS or MS. In Fitch's view, there has been no fundamental change in how these commitments are managed from a risk perspective. GS and MS have far less lending exposure when compared with their large bank peers, reflecting their focus on investment banking and securities trading activities. However, unlike most of their competitors, GS and MS currently make fair value adjustments for the bulk of their loans and commitments, which complicates revenue and earnings comparisons with other U.S. banks. If a continued shift to HFI accounting takes place, these fair value adjustments will likely diminish over time. We have generally viewed held for sale (HFS) or fair value accounting as appropriate for securities firms because of their trading nature and their roots as broker dealers. Mark-to-market balance sheet accounting offers some advantages because it can provide incentives to off load problem assets before they have a material impact on the income statement. Once a fair value loss has been booked on an asset, it is recognized through earnings. Under HFI accounting, the income statement is affected by provisions for probable credit losses. However, we do recognize the alternative view that accrual based HFI accounting could encourage better underwriting discipline at origination, because the bank will own the asset for its entire life. The trend toward HFI will likely continue given that the Federal Reserve's recent Comprehensive Capital Analysis and Review (CCAR) stress test may have been relatively punitive for loans accounted for under the fair value option. As such, this is believed to be a factor in firms' decisions regarding their current and future accounting treatments. GS disclosed that $4.3 billion of lending commitments entered into during 1Q12 were accounted for on an accrual basis and HFI rather than on fair value terms. These HFI commitments are believed to be associated with relationship lending commitments based on earnings call commentary by GS. At end-1Q12, commitments to extend credit totaled $67.0 billion for GS. During 2011, MS began accounting for certain new loans and lending commitments as HFI. At end-1Q12, MS had $18.1bn of corporate loans and commitments in HFI out of total corporate loans and commitments of $85.4bn. Effective April 1, 2012, MS began accounting for all new relationship-driven and event-driven loans and lending commitments as either HFI or HFS.