CHICAGO--()--Increased capital market activity drove stronger earnings and increased profitability for major U.S. banks in the third quarter of 2012 (3Q'12), according to Fitch Ratings.
Strong debt issuance, tighter fixed income spreads, and an equity market rally fueled a healthy rebound in capital markets revenues from depressed levels in 3Q'11 and subdued activity in the prior quarter. Core profitability for the major banks was slightly improved and better than expected during the quarter.
The mortgage refinance boom further contributed to stronger revenues for the quarter. This reflects the effects of the Federal Reserve's quantitative easing measures, which have brought long-term rates down to very low levels. Although refinance activity will continue into 2013, Fitch expects that it will level off and thus current levels are not considered sustainable.
The larger U.S. banks began disclosure of expected Basel III Tier I common ratios in Q3. Although this guidance is not finalized, Fitch expects that most rated banks will be in compliance ahead of full implementation.
Fitch completed a peer review of 10 rated community banks in mid-October. The Community Bank Peer Review resulted in the affirmation and Stable Outlook of eight banks and the affirmation and Negative Outlook for two banks. Fitch's Community Bank Peer Group is mostly defined by banks with less than $10 billion in assets that typically operate in a limited number of markets and, in general, are conservative, traditional on-balance sheet lenders for local communities.
The full 'U.S. Banking Quarterly Comment: 3Q12' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: U.S. Banking Quarterly Comment: 3Q12 (Two Sides of Mortgage Banking Coin)