Wall street sign in New York with American flags and New York Stock Exchange background.

Major Wall Street firms should continue to see a bottom-line boost from robust investment banking and capital markets activity, says Fitch Ratings.

In a new report, the rating agency said that trading, underwriting and other market-driven business segments will bolster earnings at the 12 large global trading and universal banks in 2021.

“Capital and financing needs, together with monetary and fiscal stimulus underpinning market valuations and liquidity, should continue to support these businesses, which provided banks with much-needed revenue diversification in 2020,” Fitch said.

The largest banks in the world, and those that have successfully positioned their businesses in recent years, “will benefit the most” from these market conditions, Fitch said.

In general, the U.S.-based banks are better positioned than their European counterparts to benefit from strong investment banking and capital markets activity, Fitch said, as their broader franchises “allow for greater revenue diversification.”

In the Asia-Pacific region, large economic growth potential should also boost banks with a strong presence in those markets, Fitch said.

“We believe banks with more-focused capital markets businesses will be able to continue collaborating with other divisions to help defend market share and earnings,” the report said.

Trends that have been accelerated by the pandemic — such as increased investor demand for ESG products and private assets, and increased electronic trading in fixed-income and currency markets — “will offer opportunities for competitive differentiation, but also significant risks,” Fitch said.

The report noted that market-driven businesses, overall, “are still inherently more volatile than more traditional banking, especially given their high cost structure and associated risks.”