Indie B-Ds doing ‘considerably better’ than large rivals: S&P

Just three days after the Standard & Poor’s downgraded its outlook on U.S. debt, its researchers said they expect the nation’s independent brokers to retain their stable credit profiles, at least through this year.
The recovery “is likely to be bumpy, and market conditions remain uncertain,” the rater indicated. The creditworthiness of most independent brokers, however, has been stable during and since the financial crisis, S&P noted in a report released today.
Indeed, many independent brokers have “moved away from the defensive posture they held during and just after the financial crisis” and are seeing balance sheet leverage on the rise and excess liquidity falling, the report said. Competition, especially for the institutional firms, also has heated up considerably as the economy has improved, it said.
On Monday, the ratings agency issued another AAA rating on U.S. debt but lowered its outlook to “negative,” the first such move since 1941. U.S. markets initially fell on the change, though they recovered and the Dow Jones Industrial Average yesterday reached its highest level since June 2008.
Independent brokers have “performed considerably better than their large-bank- and universal-bank-owned brokerage peers, even though they have inherently less diversified business profiles and generally fewer financial resources,” the report said.
Most of these firms could even weather “an unexpected return to much more challenging operating conditions,” according to S&P. The exceptions would be those firms carrying “a heavy debt leverage burden or those with relatively larger principal credit and market risk exposure,” the report said.

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