With capital markets activity projected to pick up, securities firms in both North America and Europe are expected to enjoy stronger profits in the year ahead, according to Fitch Ratings.
The rating agency said that its credit rating outlook for the securities sector is neutral for 2025, as the strong financial fundamentals for firms in the sector are balanced by downside risks, including geopolitical and economic uncertainty.
“Fitch expects 2025 operating performance for North American and European securities firms to remain supportive of current ratings as capital markets revenues continue to recover from cyclical lows and trading revenues remain robust in both fixed income and equity markets,” said Bain Rumohr, senior director at Fitch, in a research note.
“Investment banking activity will be aided by the rising debt maturity walls in 2025 and 2026 as well as pent-up M&A activity, as sponsors look to exit longer-duration fund holdings into a strengthening IPO market,” he added.
For retail brokers and wealth management firms, operating performance is forecast to remain relatively stable in the year ahead, “as short-term rates decline and net interest margins stabilize, driven by lower funding costs and more lending activity.”
However, firms that have less diversified business models — such as inter-dealer brokers and electronic market makers — will be more sensitive to market volatility, as revenues for these firms, “are largely volume driven,” it noted.
Alongside the improving earnings outlook, firms in the sector generally have, “conservative leverage, and strong liquidity profiles” that will help offset the market volatility risks,” driven by geopolitical tensions and variable global economic performance,” Fitch said.
“Rated securities firms have adequate levels of capital and liquidity, efficient cost structures and solid franchise positioning going into the current global central bank easing cycle,” said Rumohr. “These factors give the firms reasonable headroom at their respective ratings to the extent that the macro environment turns negative.”