Fitch: U.S. Securities Firms Show Solid Results Despite Subprime Challenges.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. , which has issued a special abbreviated report detailing its analysis of U.S. securities firms under its purview The part of a statute or a law that delineates its purpose and scope. Purview refers to the enacting part of a statute. It generally begins with the words be it enacted and continues as far as the repealing clause. , said today that the five largest U.S. investment banks The following is a list of investment banks Financial conglomerates Large financial-services conglomerates combine commercial banking and investment banking, and sometimes insurance. generated strong quarterly net revenues and earnings despite adverse conditions stemming from the domestic residential mortgage market. Fitch attributes the positive results to four factors: 1) effective product diversity, tempering the affect of the deteriorating subprime mortgage market; 2) active employment of hedges to limit their credit and interest rate risks from real estate collateral owned or warehoused; 3) increasing geographic diversity; and 4) sufficient capital to support underperforming and deteriorating assets, avoiding the need for 'fire sales' that would pressure some values and exacerbate negative mark-to-market adjustments. "While mortgage exposure exists throughout investment banks' franchises, each firm says that fewer than 5% of total net revenues are attributable to subprime mortgage activities," said Leslie Bright, Senior Director, Fitch Ratings. "Since May, unusual levels of credit deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. have been concentrated in the subprime space, impacting underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. and primary trading markets. Contagion Contagion The likelihood of significant economic changes in one country spreading to other countries. This can refer to either economic booms or economic crises. Notes: An infamous example is the "Asian Contagion" that occurred in 1997 and started in Thailand. to the Alt-A and prime sectors has greater possibility, as does fallout fallout, minute particles of radioactive material produced by nuclear explosions (see atomic bomb; hydrogen bomb; Chernobyl) or by discharge from nuclear-power or atomic installations and scattered throughout the earth's atmosphere by winds and convection currents. in the secondary market following pending rate resets of vintage mortgage pools." Fitch notes that balance sheet valuations will be a primary factor in future operating results, impacting both the market and credit risks of these firms. On the asset side, fair value reporting will require downward adjustments in several asset categories that hold mortgage-backed and other financial instruments under pressure, including: resales, trading assets, investment securities and mortgages that decline in value. On the liability side, repos and trading liabilities could be impacted. Reported values are determined by employing various methodologies: mark-to-market, mark-to-model, last sale price, and mutually negotiated price. The methodology applied depends upon the accessibility of price data, the complexity of the asset/instrument and/or any peculiar circumstances that may influence the asset holders. Mark-to-market and mark-to-model are the two most popular techniques employed. "The U.S. firms were able to seize opportunities in the capital markets to produce substantial, sometimes record-level revenues, for advisory, underwriting and distribution services. The consolidated results also reflected the benefits of product and geographical diversification within each franchise that resulted in solid contributions from core businesses," Bright said. The Special Report, 'Securities Firms 2Q07: Solid Results Despite Subprime Challenges,' is now available on the Fitch Ratings web site www.fitchratings.com under the tab Financial Institutions, then Securities Firms. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, 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 Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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