Kroll Bond Rating Agency (KBRA) assigns issuer and senior unsecured debt ratings of BBB- for Los Angeles, California-based Wedbush Financial Services, LLC (“WFS”). Additionally, KBRA assigns an issuer rating of BBB for the primary operating subsidiary, Wedbush Securities Inc. (“Wedbush” or “the company”), an SEC-registered broker-dealer and registered investment advisor, a self-clearing member of NYSE and CME, and a member of FINRA. Wedbush is also registered with CFTC as a futures commission merchant (FCM). The Outlook for all ratings is Stable.
The ratings are supported by the company’s revitalized management regime, including select new executive management team members, which KBRA considers positively, both to lead the organization and to enact the transformational evolution emanating in coordination with the generational change in leadership in 2018. KBRA also views the company’s lower risk appetite favorably, recognizing the alignment between ownership/management, risk-taking, and capital preservation. Also supporting ratings are favorable franchise elements across the company’s businesses that benefit from being the largest privately-owned investment bank headquartered and mostly positioned in the Western U.S. The diversity of revenue generation in the company’s four core business lines appears to be complementary in nature, both with respect to partially dampening economic countercyclicality inherent in the brokerage industry, as well as offering some operating synergies across segments. Partially constraining ratings is a regulatory compliance record, that while not particularly different than peers, does reflect some historic challenges. However, we note the proactive approach to address these legacy issues. Additionally, Wedbush previously exhibited, in some respects, a unitary leadership approach, reflected in a degree of deferred investment in executive development. This has been addressed through active bench building, led by change enactors at the executive level. Profitability has rebounded following the wind-down of proprietary trading strategies in fiscal year 2016, which had led to subpar performance. The ratings incorporate the view that Wedbush’s current return profile is likely to be sustained. Further, reported leverage runs somewhat above similar peers, though this is partially offset by the composition of the capital stack, as well as a lower risk balance sheet with matched-book collateralized financing.
The ratings are based upon KBRA’s Securities Firm Global Rating Methodology dated March 8, 2018.
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Disclosures
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.
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