NEW YORK--(BUSINESS WIRE)--Ongoing legal costs and declines in fixed income, currency and commodities (FICC) activity will subdue U.S. large-bank results over the near term, as evidenced by the banks' second-quarter earnings figures, according to Fitch Ratings.
Reported net income for the 17 largest U.S. banks decreased on a linked-quarter basis. For the top-six U.S. banks, core results were lower on average, from both the prior quarter and last year. These results reflected lower capital markets results and ongoing legal expenses. Fitch notes that lower provision expenses and improved mortgage banking results, as well as some one-time gains, provided some revenue offset.
High litigation-related costs, mainly mortgage-related, continue to plague the large U.S. banks. Fitch expects these costs will remain elevated over the near term as several major issues are yet to be resolved. Fitch also notes that regulatory and compliance related costs are also on the rise at the large banks, which is partially mitigating ongoing cost savings through layoffs and other efficiency initiatives.
The banks continue to report historically high deposit levels, with very high deposit balances. The industry average LTD was just 70%, which is more applicable to traditional commercial banks, in 1Q'14 as compared to the prior 30-year average of 85%.
Fitch notes these deposits could be vulnerable to a rapid outflow or repricing with the QE wind-down. Most of the balance sheets are positioned for rising rates, and as such should benefit from an increase in rates, particularly on the short-end
The full U.S. Banking Quarterly Comment: 2Q14 is available at 'www.fitchratings.com' or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: U.S. Banking Quarterly Comment: 2Q14 (Environment Constraining Earnings)