The stability of robust wealth management is helping offset the effects of the Covid-19 disruption on the big global investment firms, Moody’s Investors Service says.
The rating agency said that while the initial economic and financial market fallout from the pandemic has been a drag on the large global investment banks with substantial wealth management operations — Bank of America Corp., Credit Suisse Group AG, JPMorgan Chase & Co., Morgan Stanley and UBS Group AG — the wealth business remains a strength for the firms, as it provides relatively stable earnings and continued growth potential.
“We expect that worldwide wealth will continue to accumulate faster than global GDP once the pandemic subsides and markets gradually normalize,” Moody’s said in a report.
One positive effect of the pandemic for the banks is that it pushed clients to increase their allocations to products that are more profitable for firms, Moody’s said.
The crisis has “prompted clients to actively reconsider portfolio compositions, supporting the banks’ previously suppressed trading income and raising the proportion of higher-margin products in client portfolios, such as equities or alternative investments,” it said.
Additionally, it noted that the big banks have adequate capital and liquidity to mitigate risk.
“The five banks hold additional capital to offset the various reputational, legal and regulatory risks associated with entrusting a large base of financial advisors to appropriately manage clients’ financial activities while maintaining a strong governance and control framework,” Moody’s said.
“This additional capital also buffers operational risks inherent to the banks’ sizeable capital markets activities, helping protect their wealth management and brokerage franchises.”