Becoming a bank holding company (bhc) isn’t a solution to navigating the current financial crisis for U.S. securities firms, warns Fitch Ratings in a report released Thursday.

The rating agency notes that many non-bank financial institutions, such as finance companies and securities firms, have sought BHC status in order to access various U.S. government initiatives designed to support banks. Fitch says that while it recognizes the benefits such status can bring in the current environment, it is not a panacea for the current economic and credit cycle.

“While generally a conversion to a BHC is a positive in the current environment, as this structure affords greater financial flexibility, Fitch views positive rating momentum to be limited to those entities where conversion prevents further liquidity issues,” it says.

“In many respects, such conversions may serve to maintain ratings at existing levels and reduce, but not necessarily eliminate, downgrade risk,” it adds.

Fitch says that it expects that fundamental performance will be further stressed due to economic conditions, and BHC status will not eliminate this fact.

“This view is further reinforced by the route some applicants have had to take to achieve BHC status, such as dilutive equity offerings and debt exchanges. For those financial entities that are not able to convert to a BHC or Savings & Loan Holding Company, prospects will remain increasingly challenging, as these entities will continue to operate at a competitive disadvantage, particularly in terms of funding costs,” it concludes.

IE