TEXT-Fitch says U.S. bank results reflect ongoing risks
July 25 - Overall second-quarter 2012 (2Q'12) earnings across the U.S. banking industry were consistent with Fitch Ratings' expectations, reflected in the mixed results based on each institution's business concentrations and discussed in a report published today. Reported earnings generally improved for the large regional banks, reflecting strong refi-driven mortgage banking results and ongoing reserve releases. Among the large trading banks, adjusted earnings were generally lower on a sequential basis due mainly to weaker capital markets activity. Fitch notes that the continuing flow of mortgage repurchase requests by Fannie Mae and Freddie Mac shows no signs of abating quickly, which poses an ongoing risk for the banking industry. Several banks increased provisions sequentially after conversations with the GSEs suggested greater sampling of older vintages would result in more future claims. Fitch believes repurchase claims represent a moderate pressure on earnings among certain financial institutions. The inability to improve margins could lead some banks to take undue future risks in stretching for yield in their securities and loan books. To date, Fitch has not observed a noticeable shift in risk appetite, though the agency remains cognizant of this risk and is analyzing duration risk in the securities portfolios of rated institutions. The full 'U.S. Banking Quarterly Comment: 2Q12) is available at 'www.fitchratings.com.' The report includes commentary for 17 Fitch-rated financial institutions; a full quarterly report with supplemental financial data and individual company comments will be published at a later date.
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