The mismanagement of risks can potentially expose global investment bank bondholders to faster deterioration in credit quality compared to investors in other financial institutions, according to Moody's. These risks include the global systemically important banks' opaque, rapidly changing risk profiles; periodic concentrated positions; extensive reliance on less-stable wholesale funding; and confidence-sensitive customer bases.
Moody's Senior Vice President Peter Nerby also noted in the report that many firms have rationalized their global footprint due to tighter regulation and have had to reassess their strategies following the issues that came in the wake of the global financial crisis.
The rating agency found that from 2011 to 2016, many companies reduced their risk profiles since the global financial crisis as a response to new financial regulations. Value-at-risk metrics for many companies have also been on a decline, and global investment banks have cut their dependence on on short-term wholesale funding.
Moody's peer group for global investment banks includes Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley, Royal Bank of Canada, Credit Suisse AG, Deutsche Bank AG, HSBC Holdings Plc, Société Générale SA, UBS Group AG, Royal Bank of Scotland Group Plc, Barclays Plc and BNP Paribas SA.