Improved U.S. Bank Results in 1Q Unlikely to Be Sustained for Remainder of 2013


 
Author: Brian Bertsch
Location: Chicago
Date: 2013-04-24

Earnings for U.S. banks generally improved during the first quarter although these levels will be difficult to sustain over the remainder of 2013, according to Fitch Ratings quarterly banking report. The first quarter is generally the strongest period, and the industry still faces unpredictability on capital markets revenues and earnings.

Revenues broadly fell for the large U.S. banks that have reported to date, although reported net income improved on a linked-quarter basis for many banks. Lower provision expenses and a concerted effort to control expense growth offset lackluster top-line performance.

As expected, a decline in mortgage refinancing activities helped bank earnings. Fitch expects mortgage revenues to decline industry wide in 2013 given lower refinancing activities.

For the top five U.S. banks, aggregate revenues in capital markets were 7% below a strong first quarter 2012 (1Q'12) and 36% above the seasonally weaker 4Q'12 level. Capital markets remained a key contributor to overall revenues for the top five at 35% of consolidated revenues, with fixed income and currency and commodities activity the largest segments.

Fitch notes capital market revenues are inherently volatile from quarter to quarter and susceptible to sharp declines in the event of difficult markets.

Despite ongoing nonaccrual trend improvement, Fitch remains cautious regarding the large balance of accruing troubled debt restructurings (TDRs) on the bank's books, which are included in nonperforming assets per Fitch's calculations.

Fitch also notes legal and regulatory costs remain elevated with the ultimate visibility into lifetime losses still limited.

In February 2013, Fitch completed a peer review of 16 mid-tier regionals banks. Fitch's mid-tier regional group comprises banks with total assets ranging from $10 billion to $36 billion. The Issuer Default Ratings (IDRs) for this group are relatively dispersed with a low of 'BB' and a high of 'A+'. Also in February,

Fitch affirmed the ratings of the four institutions included in this review: Bank of New York, State Street Corporation, Northern Trust, and Brown Brothers Harriman.

The full 'U.S. Banking Quarterly Comment: 1Q13' is available at 'www.fitchratings.com.'

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