S&P revises outlook on IBG LLC and Interactive Brokers LLC

Maria Nikolova

S&P revised the outlook to stable from positive due to uncertainty over the length and severity of COVID-19-related market and economic stress which raises the potential for losses.

S&P Global Ratings on Monday revised the outlook on IBG LLC and its subsidiary Interactive Brokers LLC to stable from positive. At the same time, it affirmed its ‘BBB’ issuer credit rating on IBG LLC and its ‘BBB+’ long-term and ‘A-2’ short-term issuer credit ratings on Interactive Brokers LLC.

S&P explains that it revised the outlook to stable from positive to reflect that although it expects IBG to remain highly profitable and capitalized, uncertainty over the length and severity of COVID-19-related market and economic stress raises the potential for losses, to the extent that S&P is unlikely to raise its ratings on IBG until the COVID-19 threat has receded.

S&P notes that while the firm’s brokerage has been the leader in daily average revenue trades, it is substantially smaller than its main retail peers in terms of total client assets, with $179.8 billion as of April 30, 2020.

The stable outlook reflects our expectation that IBG will maintain very strong capitalization and supportive profitability and liquidity in the face of S&P’s latest COVID-19-related market and economic stress assumptions. S&P expects the firm will maintain its RAC ratio well above 25%, gross stable funding ratio in excess of 110%, and a liquidity coverage metric above 90%.

Let’s recall that Interactive Brokers Group posted diluted earnings per share of $0.60 for the first quarter of 2020, down from $0.64 registered in the corresponding period in 2019, and adjusted diluted earnings per share of $0.69 for this quarter compared to $0.55 for the same period in 2019.

Net revenues for the first quarter of 2020 amounted to $532 million and income before income taxes was $308 million this quarter, compared to net revenues of $558 million and income before income taxes of $339 million for the same period in 2019.

Commission revenue increased $96 million, or 55%, from the year-ago quarter on the back of higher customer trading volume in an environment of high market volatility resulting from the COVID-19 pandemic.

Total equity was $8.1 billion.

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