STANDARD & POOR'S (S&P), the United States-based credit rating agency, yesterday put Robert Fleming, the British investment bank that owns 50 per cent of Jardine Fleming, on negative outlook, and downgraded the bank's long and short-term debt ratings. The agency said the move, which comes just after Jardine Fleming revealed that it made no profits at all in the first six months of the year, particularly reflected Robert Fleming's focus on emerging market operations. Against a background of the present weaknesses in the international securities markets, this focus on emerging market operations has intensified the negative impact on income. 'Potentially, costs can be reduced in the face of weaker income, but there are inevitably personnel cost rigidities that, combined with the expenses of 'Year-2000' [millennium computer bug] and EMU [European Economic and Monetary Union] preparations, are likely to keep profitability under pressure.' S&P noted, however, that Robert Fleming was not balance sheet-driven, had a conservative lending record, and a low bad debt experience. It said the bank's net interest income accounted for only 6 per cent of operating income in the year to March. 'In addition, market risks are tightly contained. Fees, commissions and costs are the key determinants of profitability,' S&P said. The rating agency said the 14 per cent fall in pre-tax profits, which it announced for the year to the end of March, reflected the 68 per cent fall in Jardine Fleming's results, and the group would remain vulnerable to further difficulties in its Asian business and any subsequent market weakness beyond Asia. The negative outlook S&P has now ascribed to the group is indicative of the challenges management faces in tailoring the cost base to markedly changed income dynamics. 'These are, in turn, subject to the high degree of uncertainty that has beset international financial markets.' Standard & Poor's is satisfied that Flemings has begun to implement cost reductions. 'Its balance sheet remains sound; liquidity is comfortable and the Tier 1 ratio at year-end March 1998 was a strong 14.3 per cent,' it said. As a consequence, the bank's long-term counter-party credit rating had been downgraded only to A minus from A, and its short-term rating to A-2 from A-1.