Amid concerns about slower global economic growth, the investment banking sector faces a gloomier outlook, says Moody’s Investors Service.
The credit rating agency downgraded its outlook for the global investment banks (GIBs) to stable from positive, saying that it expects profitability to come under pressure over the next 12 to 18 months.
Moody’s points to slower global economic growth as likely leading to lower client activity levels, along with low (or negative) interest rates and an inverted yield curve as sources of intensifying revenue pressure for the sector.
“The stable outlook for the global investment banks reflects our expectations that profitability for the GIBs may have peaked for this economic cycle,” said Ana Arsov, managing director at Moody’s.
“Greater revenue headwinds will make further profitability gains more elusive, despite a continued focus on business reengineering and technology investments to boost efficiency,” she said.
Moody’s said that weaker global economic growth and elevated corporate leverage will likely also result in higher credit costs for the GIBs.
It further said that the risk of a more dramatic slowdown in global growth has risen, due to escalating trade and geopolitical tensions.