NEW YORK--(BUSINESS WIRE)--U.S. securities firms are well positioned from capital and liquidity perspectives, but 2015 profitability will continue to be challenging for the sector, according to a special report published today by Fitch Ratings. An increase in volatility that is neither too little nor too much could help improve earnings, despite continued regulatory and operating environment constraints.
Fitch's 2015 rating outlook for U.S. securities firms is stable, reflecting solid levels of capital and liquidity, less risky and more focused business models, and a robust regulatory environment. These factors are expected to reduce the rating impacts of macroeconomic uncertainty, uneven profitability and a rising interest rate environment.
While the rating outlook is stable, Fitch's sector outlook for U.S. securities firms is negative, reflecting earnings pressures from prolonged low interest rates and relatively benign market volatility.
For full services securities firms, increased market volatility can produce mixed results, with a solid pick-up in client activity driving higher revenues, while a material market sell-off can reduce client confidence to transact, amplifying potential trading losses and affecting profitability. Inter-dealer brokers are expected to remain challenged in 2015, given continued lower trading activity, historical low volatility levels, on-going broker-dealer deleveraging, and structural regulatory reforms that continue to reshape the over-the-counter derivatives market. A modest increase in volatility could spur increased trading volumes by inter-dealer brokers clients, while outsized volatility could sideline traders awaiting more normalized market conditions.
Among the various types of securities firms, retail brokers are perhaps best positioned given the potential for expansion of net interest margin and net investment income in a rising rate environment. If improved economic conditions result in increased retail trading and a move toward risk assets, this would also generate increased trading commissions and fees for brokers. Conversely, outsized volatility would likely suppress retail trading volumes, impact trading commissions and pressure margin lending.
The full report '2015 Outlook: U.S. Securities Firms' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2015 Outlook: U.S. Securities Firms (Solid Liquidity and Capital Offset Economic Challenges)