Strong investment banking activity, coupled with gains in asset and wealth management, helped offset weakness from lower net interest income for Wall Street’s big banks, Fitch Ratings says.
In the second quarter, U.S. bank earnings faced pressure from higher funding costs and weaker credit quality. However, rising fee income cushioned the effects of softer income from core banking activities, the rating agency noted.
At many of the big U.S. banks, higher deposit costs weighed on net interest income in the second quarter. Yet, fee income proved resilient, “supported by a building recovery in investment banking,” Fitch said.
Among the largest trading banks — Bank of America Corp., Citi, Goldman Sachs, JP Morgan and Morgan Stanley — total investment banking fees were up 40% year-over-year, led by a 56% rise in debt underwriting revenues.
“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,” Fitch said.
Income from sales and trading was strong in the second quarter too, “particularly in equity capital markets, which grew 18% on aggregate across the five trading banks.”
Fee income from asset management and wealth management was stronger on a year-over-year basis thanks to robust growth in assets under management or administration.
In terms of credit quality, the banks’ net charge-off rates generally ticked higher, driven primarily by office real estate and credit cards, Fitch said. Charge-offs also showed signs of stabilizing.
“Early delinquencies in credit card books broadly declined, which could foretell a coming slowdown in card losses,” Fitch said.
The banks also generally took a cautious approach toward capital and liquidity requirements as regulators worked to finalize the implementation of the Basel III reforms.