Fitch Ratings has affirmed its ratings on besieged investment bank Goldman Sachs Group, Inc., but revised the rating outlook to negative from stable citing Goldman’s growing legal troubles.

The rating agency says that the outlook revision reflects “recent legal developments and ongoing regulatory challenges that could adversely impact Goldman’s reputation and revenue generating capacity”. Additionally, the firm says that, “Goldman’s franchise and market position are potentially vulnerable to scrutiny by stakeholders, and like peers, may be affected by the industry’s regulatory evolution.”

In particular, Fitch points to the civil fraud charges filed by the U.S. Securities and Exchange Commission last month, and the fact that the U.S. Attorney’s Office in Manhattan has initiated a criminal probe in connection with Goldman’s mortgage trading activity. The allegations have not been proven.

“Given the level of recent public scrutiny, it is not surprising that other authorities outside of the U.S. have also expressed intentions to investigate select mortgage-related transactions conducted by Goldman,” it says, adding that, at a minimum, Fitch believes the civil charges and the pending criminal investigation, coupled with a highly public hearing by the U.S. Senate’s Permanent Subcommittee on Investigations, “generate adverse publicity that tarnishes Goldman’s reputation. And for financial services companies, particularly those dependent on the capital markets, reputation is critically important.”

Moreover, it suggests that shareholder and investor claims may emerge that would consume management time and financial resources.

Fitch says it believes Goldman has sufficient financial resources to address any potential monetary fine or settlement (including full restitution to impacted parties) that may arise from the SEC civil suit, as well as any penalties that may result from the criminal probe. While penalties by foreign authorities “could not be accurately estimated”, Fitch notes that these “have generally not proven to be debilitating”.

“While not expected, Fitch believes Goldman’s franchise is at greater risk in the event the company was to be the recipient of a formal criminal indictment. However, Fitch does not foresee such an extreme outcome for Goldman,” it adds.

Additionally, the rating agency suggests that potential regulatory reform may curtail some of Goldman’s core business activities. “Higher capital requirements, central clearing of derivatives, restricted proprietary trading and investment activity are key legislative items currently being contemplated that would challenge Goldman’s current business model,” it says. “These reforms may favorably influence the risk profile, but potentially reduce revenues, increase costs or reduce profitability in select businesses.”

These changes will also impact Goldman’s competition of course, and Fitch says that it believes Goldman “will position itself to compete successfully in its key business segments”.

In the meantime, it is affirming the firm’s rating, citing its de-levered balance sheet, proven earnings power, and its prominence and demonstrated success in global capital markets and sales & trading.

Fitch believes there are a variety of possibilities for Goldman’s future ratings. “The most pessimistic downgrade scenarios entail adverse decisions in the pending suits and investigations, coupled with highly restrictive financial reform. The extent of any downgrade would depend on the ultimate legal decisions and financial outlays, with adverse conclusions in the criminal investigation resulting in more severe downgrades,” it says.

Conversely, if the legal issues and regulatory reforms turn out to be minor events for Goldman, Fitch would view these as positive credit developments and the outlook would likely be revised back to stable.