Global investment banks will continue to face weak profits and shareholder returns in the next couple of years, sparking strategic shifts of varying degrees, says Moody’s Investors Service.

For most global investment banks, the first quarter of 2014 continued a five-year trend of reduced profitability and a shrinking revenue pool, Moody’s notes. The rating agency says that the challenging economic environment and regulatory changes will continue to dampen profitability at the major investment banks. These factors will likely also lead to greater differentiation between these firms, it suggests, as the banks shift strategies to respond to the environment.

“In 2014 and 2015, the global investment banks will continue to face a number of obstacles in their operating environment as well as new rules of engagement in the regulatory arena. These forces will make it more difficult for the banks to achieve their cost of capital,” says Peter Nerby, senior vice president at Moody’s and author of the report.

The report divides the 15 global banks that Moody’s rates into three groups according to the strategic challenges they face, and their responses. It lumps Royal Bank of Canada (the only Canadian firm among the 15) in with BNP Paribas, Goldman Sachs, HSBC, and JPMorgan Chase as the banks that are best-positioned to deal with operating and regulatory challenges, thanks either to the balance of their business mix or the operating effectiveness of their business models.

Barclays, Deutsche Bank, Morgan Stanley, Nomura, Royal Bank of Scotland, and UBS form a group of banks that are undergoing fundamental strategic overhauls. “If the strategic re-positioning by these banks is successful, it will over time be positive,” Moody’s says. However, it notes that the execution risks are significant, and that this could have negative credit implications for some of the banks.

And, the remaining firms — Bank of America, Citigroup, Credit Suisse, and Societe Generale — need less drastic adjustments to their business models compared with those undergoing strategic overhauls, Moody’s says. “Though facing significant challenges, these banks remain committed to maintaining a substantial capital markets franchise and, given their other franchise characteristics, should have sufficient flexibility to right-size their capital markets footprint as required,” it says.