With earnings volatility likely to continue for the foreseeable future, U.S. securities firms are facing significant challenges well into next year, Fitch Ratings says in a new report.
The rating agency is maintaining its negative outlook for securities firms despite improvements in liquidity and capital. “Capital raises have not been sufficient to calm investors,” it says, and therefore, Fitch expects to see a departure from the current efforts of merely selling high risk assets.
“In the mean time, the duration of the crisis and lack of improvement in market conditions and attitude lower profitability expectations over the next several quarters,” it warns.
“Recent performance levels have shown an industry that is burdened by out of favor asset exposures, unpredictable and volatile market conditions, and an economic backdrop that is at best uncertain,” said Fitch managing director Eileen Fahey.
However, the firm added that the outlook for securities firms is not completely dire. “Several business segments are performing at or near full capacity, providing the firms with strong revenue growth and profit generation,” said Fahey. “Management teams have a keen focus on risk aversion, capital raising and building or maintaining high levels of liquidity, priorities that are appropriate today in an industry that is highly dependent on market confidence.”