Fitch: Litigation Costs and FICC Revenue Declines to Temper U.S. Large Bank Growth

Wed Jul 23, 2014 3:03pm EDT

Related Topics

(The following statement was released by the rating agency) NEW YORK, July 23 (Fitch) Ongoing legal costs and declines in fixed income, currency and commodities (FICC) activity will subdue U.S. large-bank results over the near term, as evidenced by the banks' second-quarter earnings figures, according to Fitch Ratings. Reported net income for the 17 largest U.S. banks decreased on a linked-quarter basis. For the top-six U.S. banks, core results were lower on average, from both the prior quarter and last year. These results reflected lower capital markets results and ongoing legal expenses. Fitch notes that lower provision expenses and improved mortgage banking results, as well as some one-time gains, provided some revenue offset. High litigation-related costs, mainly mortgage-related, continue to plague the large U.S. banks. Fitch expects these costs will remain elevated over the near term as several major issues are yet to be resolved. Fitch also notes that regulatory and compliance related costs are also on the rise at the large banks, which is partially mitigating ongoing cost savings through layoffs and other efficiency initiatives. The banks continue to report historically high deposit levels, with very high deposit balances. The industry average LTD was just 70%, which is more applicable to traditional commercial banks, in 1Q'14 as compared to the prior 30-year average of 85%. Fitch notes these deposits could be vulnerable to a rapid outflow or repricing with the QE wind-down. Most of the balance sheets are positioned for rising rates, and as such should benefit from an increase in rates, particularly on the short-end The full U.S. Banking Quarterly Comment: 2Q14 is available at 'www.fitchratings.com' or by clicking on the link. Contact: Julie Solar Senior Director +1-312-368-5472 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Christopher Wolfe +1-212-908-0771 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: U.S. Banking Quarterly Comment: 2Q14 (Environment Constraining Earnings) here 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 WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

FILED UNDER: