Moody's downgraded its 2019 outlook for global investment banks to stable from positive, citing slower global economic growth and a lower-interest-rate environment as likely headwinds to profitability.
The rating agency said that elevated corporate leverage, combined with the global growth slowdown, will result in modestly higher credit costs. What's more, the odds of a sharper slowdown have risen as trade and geopolitical tensions have increased. The low-rate environment, along with a very flat or inverted yield curve, will pressure profitability, Moody's said.
On the positive side, Moody's touted global investment banks', or GIBs', strong balance sheets and conservative risk profiles, which will help them guard against potential risks. The rating agency also said that capital and liquidity will remain strong for GIBs, even as shareholder payouts rise. Finally, more-accommodative policy from central banks should bolster financial conditions.
Bulge bracket investment banks in general saw weaker results in the second quarter. While Goldman Sachs Group Inc. managed to beat Wall Street's earnings estimates, total revenues decreased 2% on a year-over-year basis as investment banking, investment management and market-making segment revenues dropped. Morgan Stanley's total revenues in the quarter decreased 3% on a year-over-year basis, and trading revenues plunged 17%.
