Heading into 2024, the rating outlook for securities firms is neutral, amid expectations that earnings will improve only modestly in the year ahead, Fitch Ratings says.
In a new report, the rating agency said it expects profits to hold up in 2024, alongside conservative leverage and liquidity positions that will help offset the risks of the tighter-rate environment.
Overall, Fitch said North American and European securities firms should experience “relatively stable” profitability in the year ahead.
“Debt and equity underwriting volumes will climb, but the magnitude will depend on global economic conditions and issuers’ willingness to address 2025 maturities with costlier debt,” Bain Rumohr, senior director at Fitch, said in a release.
At the same time, as monetary policy stabilizes, market volatility should decline, it noted.
“This type of environment would limit potential revenue growth at inter-dealer brokers and electronic market making firms and constrain trading revenue growth at broker dealers,” Fitch said.
And, for securities firms with more interest rate-sensitive balance sheets, the higher-for-longer rate environment “will no longer be a meaningful earnings tailwind for underlying financial performance,” it added.