U.S. banks face rosier second half

Many of the big banks saw fee income rise, while expenses generally declined, it noted.

“Earnings and revenue headwinds have clearly moderated as unfavourable trends in deposit pricing and provision growth have markedly slowed,” the report said.

After rising by 300 basis points since the start of 2022, the cost of interest-bearing deposits was barely changed in the second quarter — up just four basis points, Fitch noted.

“As a result, the majority of banks reported [quarter-over-quarter] improvement in net interest income in [the second quarter], marking a potential pivot after multiple quarters of sequential declines,” it said.

Additionally, strong loan loss provisions “are absorbing now-familiar stresses on commercial real estate and consumer loan portfolios without significant need to take outsize provisions,” it said.

Fee income grew at its fastest pace in three years among the large banks, driven by a rebound in investment banking, Fitch said.

For the big Wall Street banks, total investment banking fees were up 40% on a year-over-year basis, it said, as debt underwriting revenues rose 56% on aggregate.

“Banks also reported healthy investment banking pipelines and improving market sentiment for issuance, signalling the potential for sustained fee growth in the second half of the year,” it said.

With the pressure on net interest income easing and fee income rising, Fitch is expecting stronger, more broadly based revenue growth in the second half.

Alongside the strength for investment banking, income from sales and trading was strong in the second quarter too, “particularly in the equity capital markets,” Fitch said.

Asset and wealth management–related fee income was also “broadly stronger,” as assets under management and/or administration grew, it said.