While the brokerage sector should benefit from an ongoing economic recovery and rising interest rates in 2022, competitive threats are looming too, Fitch Ratings says.
The rating agency’s outlook for independent brokerage and advisory firms in both North America and Europe for the year ahead is neutral, given the cross-currents facing the sector.
Fitch said it expects the economic recovery and gradually rising rates to support revenues in 2022, which should help cushion the effect of slowing merger and acquisition activity following a record year for M&A, and reduced volatility.
“The continued economic recovery will likely support reasonable levels of capital markets and trading activity for securities firms,” said Evgeny Konovalov, director at Fitch, in a release.
“Funding availability and generally conservative leverage profiles provide a cushion against more rapid-than-expected interest rate hikes and/or an equity market correction,” he added.
At the same time, retail brokers in particular face growing competitive threats from fintechs, along with increased regulatory scrutiny around their use of gamification to drive retail trading and crypto exposure, Fitch said.
Regulators’ concerns could also curb the popularity of special purpose acquisition corporations (SPACs), it noted, which would pressure M&A volumes and advisory firms’ revenues.