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Fitch: 4Q US Bank Earnings to be Mixed, Volatility Lifts Trading
January 10, 2017 / 7:01 PM / 10 months ago

Fitch: 4Q US Bank Earnings to be Mixed, Volatility Lifts Trading

(The following statement was released by the rating agency) NEW YORK, January 10 (Fitch) Fitch expects large U.S. banks' 4Q16 results will be mixed. Large trading banks' earnings likely benefited from election-related market volatility; however, overall loan growth likely remained muted during the quarter. The Federal Reserve's decision to increase short-term rates 25bps came late in the quarter, such that net interest margins did not likely benefit. Fitch expects credit trends remained fairly benign during the quarter, particularly as oil prices stabilized. While overall loan growth is expected to be sluggish for the quarter, consumer lending likely came in relatively stronger, mainly driven by credit card and automobile loan growth. According to Federal Reserve figures for large domestic banks, overall loan growth is estimated at 0.5%-0.7% for 4Q16, dampened by election and monetary policy uncertainties. Fitch anticipates that residential mortgage volumes slowed during the quarter, mainly due to lower refinance activity, putting downward pressure on mortgage banking revenues. The interest rate increase could be beneficial to the valuation of mortgage servicing rights (MSRs), as prepayments typically slow when rates increase, although much depends on bank-specific assumptions used and any hedging related activity. While banks did not likely see a lift in their net interest margins, large banks incurred unrealized valuation losses on available for sale (AFS) securities due to the rate rise. According to Federal Reserve data, large domestic banks swung from a cumulative gain position of $19.9 billion at the end of 3Q16 to an estimated loss position of $11.2 billion during the quarter. Although not a core earnings issue, for advanced approach banks, valuation losses are recognized in regulatory capital ratios. Furthermore, given Federal Reserve monetary policy guidance, Fitch anticipates AFS securities portfolio valuations will remain pressured. Trading activity likely benefited from the outcome of the U.S. presidential election and Federal Reserve policy as market participants re-positioned portfolios across FICC and equities versus the year-ago period. This is particularly the case given that the fourth quarter is typically a slower period for sales and trading. This should buoy the results for the large U.S. trading banks, which continue to gain market share against their European peers. Banks continued to grow deposits during the quarter, outpacing loan growth. We expect continued growth in non-interest bearing balances until banks begin to meaningfully increase rates offered on various deposit products. Contact: Chris Wolfe Managing Director, Financial Institutions +1 212 908-0771 Fitch Ratings, Inc. 33 Whitehall Street New York, NY Justin Patrie, CFA Fitch Wire +1 646 582-4964 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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