S&P threatens downgrade of US finance companies

Standard & Poor's on Friday raised the pressure on Washington debt negotiators, saying it could downgrade insurers, securities clearinghouses, mortgage agencies and a laundry list of other firms if there is not a deal soon to lift the U.S. debt ceiling and cut the deficit.

While S&P had already made clear it could downgrade the United States's sovereign credit rating, the move Friday struck directly at the heart of the financial system, raising the prospect of knock-on effects should the country exhaust its ability to borrow to pay bills.

The U.S. Treasury took the last available step Friday to try and extend that borrowing capacity.

The ratings agency on Friday put on negative credit watch a range of powerful financial firms, many of them little known to

the public but crucial to the nation's financial infrastructure. U.S. government securities are central to the operations of most of the companies cited.

They include the Depository Trust Co, which facilitates payment transfers among major banks, as well as several Federal Home Loan Banks and Farm Credit System Banks. They also singled out Fannie Mae , Freddie Mac , the two agencies central to the U.S. residential mortgage market.

S&P characterized its targets as "entities with direct links to, or reliance on, the federal government."

Separately, the agency said the four remaining U.S. nonfinancial companies with "AAA" ratings were not affected by the downgrade threat.

ONUS ON WASHINGTON

Many of the firms put on negative watch were quick to turn the focus back on President Barack Obama and the congressional leaders trying to hash out a deal to stave off a debt default.

"Whatever happens will have nothing to do with us, and everything to do with Washington. The hope on everyone's part is obviously that Washington gets its act together so that both their rating and ours can remain where they belong -- at AAA," said Patrick Korten, a spokesman for insurer Knights of Columbus, which was on the negative watch list.

Among the other insurers put on watch, a spokesman for Goldman Sachs , parent company to Goldman Sachs Mitsui

Marine Derivative Products LP, declined to comment. A spokesman for New York Life said S&P told it no financial institution can carry a higher rating or outlook than its sovereign rating, and that the insurer believes its rating to be fully justified. The others were not immediately available to comment.

Another broad group in S&P sights is the clearinghouses, which guarantee contracts tied to everything from oil contracts to shares of Google and are critical to U.S. financial market stability.

"It's not unexpected, and we don't see this as a reflection on how OCC conducts its business," said Jim Binder, spokesman for the OCC, which clears U.S. options or futures for 14 exchanges. "It's all about what's going on in Washington."

The U.S.-based Depository Trust & Clearing Corporation, which runs the National Securities Clearing Corporation and the

Depository Trust Company, did not immediately comment.

Freddie Mac also declined to comment. Fannie Mae did not immediately respond to requests for comment.

(Reporting by Ben Berkowitz, Jonathan Spicer, Dan Wilchins and Dan Bases in New York and Margaret Chadbourn in Washington; Writing by Ben Berkowitz; Editing by James Dalgleish)