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Fitch: Profitability Is the Main Challenge for GTUBs in 2018
December 5, 2017 / 2:16 PM / 7 days ago

Fitch: Profitability Is the Main Challenge for GTUBs in 2018

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Fitch 2018 Outlook: Global Trading and Universal Banks here LONDON, December 05 (Fitch) Profitability remains the main challenge for the 12 Global Trading and Universal Banks (GTUBs), which will face pressure on earnings again in 2018, Fitch Ratings says. The GTUBs' strong capital positions mean they are well placed to manage continued earnings pressure, while the solid economic growth in developed markets underpins our stable sector outlook. Profitability in the coming year will be affected by pressure on capital markets-related earnings if sales and trading income remains subdued in the absence of increased market volatility. Operating profitability varies across the banks in the peer group, and subdued securities trading activity has highlighted the importance of strong franchises and market share and diverse product ranges in smoothing earnings volatility. US GTUB earnings are likely to benefit from rising US rates if the yield curve steepens. The overall impact will be muted as US loan loss provisions, which have been very low for several years, also increase, but we expect any asset-quality deterioration to remain easily manageable. The rise in the Bank of England base rate should give some support to UK margins and UK GTUBs should be able to manage any asset-quality deterioration caused by Brexit-related uncertainty. Western European asset quality will be supported by sound economic growth in the eurozone. We do not expect an increase in risk appetite, helping support solid capital ratios. Capitalisation is a credit strength for the GTUBs at their rating levels. Most have reached their target common equity Tier 1 ratios and we expect all GTUBs to meet TLAC requirements comfortably. US GTUBs maintain high volumes of holding company senior debt, which will be eligible to meet the groups' TLAC requirements. The UK and Swiss GTUBs have built up buffers of bail-inable holding company debt. The French GTUBs have started to issue TLAC-eligible non-preferred senior debt from their parent banks. Resolution planning may see further changes to capital structures as regulatory requirements are clarified. For example, GTUBs will start pre-placing internal TLAC in their international subsidiaries, while UK GTUBs will ring-fence their domestic retail operations. The Outlooks on all GTUBs' parent companies are Stable. Any material increase in risk appetite or reduction in capital from share buy-backs or increased dividend pay-outs, which could arise from looser regulation, would put pressure on ratings. The report "Fitch 2018 Outlook: Global Trading and Universal Banks" is available at www.fitchratings.com or by clicking the link above. Contact: Christian Scarafia Senior Director, Co-Head Western European Banks +44 20 3530 1012 Fitch Ratings Limited 30 North Colonnade London E14 5GN Luis Garrido Associate Director, Financial Institutions - Banks +44 20 3530 1631 Bridget Gandy Managing Director, Co-Head EMEA Financial Institutions +44 20 3530 1095 Joo-Yung Lee Managing Director Financial Institutions - Banks +1 212 908-0560 Mark Brown Senior Analyst, Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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