Standard & Poor's said it doubts a settlement between

Merrill Lynch

(MER)

and the state of New York would result in a downgrade for the brokerage.

In a statement, S&P said it believes that any fine "will not be substantial relative to Merrill's resources, that the firm will not be competitively disadvantaged as a result of changes in its research policies, and that any reduction in retail brokerage revenues will be minor."

But the ratings agency did say it expects Merrill will have to pay some type of fine and be forced to make additional changes to its policies governing the activities of its equity research analysts.

Merrill and New York Attorney General Eliot Spitzer have been in negotiations over conflicts of interest between Merrill analysts' stock recommendations and the firm's investment banking business.

Spitzer produced documents revealing that Merrill analysts in the firm's Internet research group were privately disparaging certain companies while publicly telling investors to buy the stocks.

S&P added that a significant fine or criminal indictment could result in a downgrade.