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Fitch Expects GTUBs to Meet Regulatory Challenges
December 8, 2014 / 9:38 AM / 3 years ago

Fitch Expects GTUBs to Meet Regulatory Challenges

(The following statement was released by the rating agency) LONDON, December 08 (Fitch) Fitch Ratings says that despite expected pressure on earnings for 2015, the outlook on the global trading and universal banks (GTUBs) sector remains stable as the banks have continued to strengthen their balance sheets. Improved capitalisation will also help the banks to absorb expected further fines and sanctions, as all banks in the peer group remain exposed to conduct risk. All GTUBs have made good progress in strengthening balance sheets, mainly by reducing risk exposure. As global systemically important banks (G-SIBs), GTUBs are subject to the Financial Stability Board's (FSB) November 2014 proposals for total loss-absorbing capacity (TLAC) requirements, which in the medium term will create a sizeable additional buffer of bail-in debt. We expect that preparations for improving their resolvability will remain key projects for GTUBs during 2015. Group structures, capital allocation and debt stratification within the banking groups will evolve as a result. Profitability continues to vary widely among the banks in the peer group. All GTUBs have material operations outside their securities businesses, which helped performance in 9M14. However, low interest rates mean that margins remain under pressure, which we expect to continue until short-term interest rates increase. The performance of securities businesses suffered from low market volatility, particularly in 1H14. A moderate increase in market volatility that results in improved trading volumes should help earnings, but overall we expect earnings to remain under pressure. The stable outlook on the sector is based on our expectation that the global economic recovery will continue, albeit at a sluggish pace. Fitch's main downside scenarios include the effects of a sharp and unexpected hike in US interest rates and a deflationary scenario in the eurozone. Lower risk appetite should help GTUBs avoid material losses in these scenarios, but an adverse operating environment could result in a change of our outlook if earnings prospects suffer materially. As globally operating banking groups, GTUBs are among the banks that are most affected by regulatory and legislative initiatives. We expect further implementation of regulatory-required changes during 2015, including changes to the group structures of some GTUBs, and we expect the banks to comfortably meet regulatory prudential and conduct requirements. Failure to implement these changes smoothly could signal management or capital weaknesses and could result in a change of our Outlook or ratings. Fitch affirmed the ratings of the 12 GTUBs on 25 November 2014 following a peer review. The 12 banks in the peer group are: Bank of America Corporation, Barclays plc, BNP Paribas, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, The Goldman Sachs Group, HSBC Holdings plc, JPMorgan Chase & Co., Morgan Stanley, Societe Generale and UBS AG. The IDRs of four GTUBs are based on sovereign support (Bank of America, Deutsche Bank AG, Societe Generale and Morgan Stanley), and the Outlooks for three of these are Negative. This reflects Fitch's view that there is gathering political momentum to resolve even the most complex banking groups without requiring state support. We expect to revise the Support Rating Floors (SRFs) for all GTUBs to 'No Floor' during 1H15. This would result in a downgrade of these support-driven IDRs to the banks' VRs. The Stable Outlook on Morgan Stanley's Long-term IDR, despite a lower VR than SRF, reflects a likely VR upgrade by end-1H15. For more details on the result of our peer review and our outlook for the GTUBs, see "2015 Outlook: Global Trading and Universal Banks" and "Global Trading and Universal Banks: Peer Review", published at Contact: Christian Scarafia Senior Director +44-20-3530-1012 Fitch Ratings Limited 30 North Colonnade London E14 5GN Bridget Gandy Managing Director +44-20-3530-1095 Joo-Yung Lee Managing Director +1-212-908-0560 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email:; Brian Bertsch, New York, Tel: +1 212-908-0549, Email: Additional information is available on Applicable Criteria and Related Research: 2015 Outlook: Global Trading and Universal Banks here Global Trading and Universal Banks: Peer Review here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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