The outlook for the credit ratings on U.S. securities firms is negative for the year ahead, says Fitch Ratings.
The rating agency says that credit conditions will remain challenged for in the U.S. securities business in 2012, due to earnings pressure “emanating from global economic conditions and regulatory developments.”
Fitch says it expects that trading could continue to be volatile in 2012 because of stress in Europe and continued market uncertainty. “Investment banking activity will also be pressured as client firms may have limited opportunities to access the capital markets. Weak and uncertain markets may also dampen M&A activity and thus related M&A revenues,” it adds.
Additional regulation will also subdue earnings, it suggests. Fitch says that securities firms that are subject to the Volcker Rule have already eliminated most proprietary trading operations, which may reduce earnings volatility. And, regulations that lead to higher capital will have positive benefits for the business in the long run, but in the near- to intermediate-term, it says regulation will add costs for compliance.
Nevertheless, Fitch says it expects that securities firms will maintain stable leverage and capital levels, with some improvement possible as firms seek to ensure market access and protect against ongoing volatility.