GLOBAL investment banks are well-positioned to handle many of the economic uncertainties that are likely to arise in the coming year.
Despite the widespread economic turmoil experienced during 2020 due to the spread of the COVID-19 pandemic, Moody’s Investors Service expects global investment banks (GIBs) to begin the 2021 in a stronger position than many other segments of the economy due to their diversified businesses, solid capital levels and ample stock of liquidity reserves.
“The GIBs enter 2021 with strengthened capital and robust liquidity and funding,” Moody’s Financial Institutions Group’s managing director Ana Arsov pointed out.
“They’ve benefited from exceptional capital markets’ revenue that has countered the billions set aside for credit-loss provisions. They’re well-placed to deal with the uncertainties of the coming year that will pressure asset quality.”
Despite uncertainties, the GIBs will likely be a beneficiary from what is expected to be an economic rebound in 2021, according to the credit rating agency.
“The G-20 advanced economies are expected to have contracted by 5.1% during 2020 but will see a rebound and growth of 4.2% in 2021,” projected Moody’s.
“While their underlying strengths are considerable, the banks will remain hampered by persistently low interest rates and uncertainty about the future containment of the coronavirus.”
However, advanced economy governments will continue to provide fiscal economic support for the next several quarters, and monetary policy in the US, Canada, Europe and Japan will remain highly accommodative – helping to mitigate asset quality vulnerabilities.
Moreover, these banks also benefitted substantially from revenue generated by their capital markets businesses with roughly a full year’s worth of revenue earned during the first nine months of 2020.
“While these are expected to moderate during 2021, they should remain a significant revenue driver,” noted Moody’s.
“Also, while M&A activity was sluggish during most of 2020, this is expected to rebound in the coming year and boost the GIBs’ results.”
Additionally, global investment banks will also continue to develop their digital footprints and will sustain their advantage over their smaller competitors in digital diversification and development. – Dec 7, 2020
