Fitch: Short-Term Rates Constrain U.S. Trust Bank Revenues Although Credit Quality Remains Strong

CHICAGO--()--The low interest environment has the U.S. trust and processing at a trough but longer-term upsides remain, according to a new Fitch Ratings report.

The trust banks' revenues are very sensitive to higher short-term rates given their large and relatively short-duration securities portfolios. These portfolios could quickly be reinvested at higher rates, as well as from the potential alleviation of money market waivers for some institutions.

Although low interest rates have prevented stronger revenue growth at these banks over the last several years, Fitch believes that overall returns on equity have remained satisfactory from a credit perspective.

The trust and processing banks have invested significantly in technology to upgrade systems and better manage operational risks. Fitch believes this risk is now better managed than in the pre-financial crisis years. Fitch notes that the most significant risk to the trust banks is a large operational loss that would cause a wave of client departures.

On Aug. 14, 2014, in conjunction with its U.S. trust and processing bank peer review, Fitch affirmed the ratings for Bank of New York Mellon Corporation, Northern Trust Corporation and Brown Brothers Harriman. Fitch also upgraded the ratings for State Street Corporation. The Rating Outlook on all four banks is Stable.

The trust banks have some of the highest ratings in Fitch's global financial institutions portfolio. The trust banks' business model creates large barriers to entry due to their size and scale, and a combination of market and operating factors have driven consolidation so that the segment is dominated by a few large players.

The full report 'U.S. Trust and Processing Banks' is available at 'www.fitchratings.com.'

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: U.S. Trust and Processing Banks (Earnings Sensitive to Higher Short-Term Rates)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754494

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Contacts

Fitch Ratings
Justin Fuller, CFA
Senior Director
+1-312-368-2057
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Justin Fuller, CFA
Senior Director
+1-312-368-2057
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com