Results of the 16 largest US banks modestly improved on a linked-quarter
basis, with 10 banks reporting higher net income. Overall performance,
however, was generally lackluster, says Fitch Ratings.
Third-quarter results were affected by increased market volatility,
interest rate uncertainty, pressures in oil and gas, and a slowdown in
mortgage activity. Offsetting these trends were generally lower expenses
and still very benign credit costs. Despite the slight earnings
improvements, ROEs remain very depressed relative to precrisis levels.
Going forward, controlling expenses will remain a key theme for the big
US banks given the market's lowered rate expectations following the
September FOMC announcement. Virtually all of the largest US banks
achieved lower expenses on a linked-quarter basis. The absence of land
and branch valuation charges and lower legal and regulatory charges were
some of the main drivers.
Bank of America, Citigroup, JP Morgan Chase, Goldman Sachs and Morgan
Stanley all reported lower capital market revenues on a linked-quarter
basis. Lower client activity and increased volatility in the markets
were blamed. Much of the decline was due to lower equity underwriting
revenues, which fell 53% linked-quarter, and 44% from a year ago. FICC
revenues also fell sequentially and from a year ago due to volatility in
the global markets.
Mortgage results fell following the seasonally strong spring selling
season. The application pipeline declined at the end of second-quarter
2015, thus results were within expectations. Mortgage revenues will
likely decline further in fourth-quarter 2015 given the seasonally
slower winter selling season.
Most of the commercial banks included the big US bank universe reported
lower reserve releases, primarily driven by deterioration in energy
portfolios, offset by still improving nonaccrual levels. While the
impact of falling oil prices has yet to result in material loan losses
for the large banks, most of the banks reported increases in
energy-related problem assets.
Net charge-offs remain unsustainably low.
Fitch expects that the banking industry overall will begin building loan
loss reserves, primarily driven by loan growth, slowing improvement in
certain asset classes and oil-related deterioration. As interest rates
begin to rise, this will likely affect credit quality and may contribute
to higher loan losses and loan loss provisioning over the medium term.
Capital ratios, on average, increased during the third quarter,
reflective of retained earnings growth and essentially no balance sheet
growth in aggregate. The fully phased-in common equity tier 1 for all of
the banks included in Fitch's analysis was a robust 10.5%. We expect
this historically high level of capital will be managed down over time
through both increased shareholder distributions and organic growth,
especially for those banks not subject to a systemically important
A complete report on the third-quarter 2015 earnings of the largest US
banks may be found in: "U.S. Banking Quarterly Comment: 3Q15" at
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
U.S. Banking Quarterly: 3Q15
U.S. Banking Quarterly Comment: 1Q15 (Low Rate Environment Takes its
Toll on Regionals)
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