Fitch Ratings says that it has a negative outlook on U.S. securities firms for the year ahead, given both economic uncertainty and the new regulations that firms are facing, which will continue to constrain both revenues and earnings.
“Securities firms will face a number of new regulations with the implementation of Dodd-Frank and other rules. Higher capital standards, restricted proprietary trading, and central clearing of derivatives may result in more conservative risk profiles particularly at large institutions,” it says. And, costs to comply with these rules will continue to pressure revenue generation and earnings, it adds.
The negative outlook is tempered by increased financial resiliency among U.S. securities firms, Fitch says, including improved capital, comfortable liquidity, and more conservative funding mixes. Additionally, securities firms have generally reduced overall risk levels and improved risk management practices and systems, it says.
Nevertheless, despite these improvements, the rating agency warns that the potential for negative rating pressure persists. And, it says that current ratings have limited upward potential, given the inherent volatility of the capital markets business, it notes.