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The large U.S. banks have reported mixed first quarter results, with those more reliant on capital markets underperforming those driven by lending activity, says Fitch Ratings.

Generally, the banks that have benefited most from commercial loan growth and rising net interest income have reported better results than the banks with large capital markets exposure, Fitch said in a report.

“Net revenues were down on a [year-over-year] basis versus very strong Q1 2021 results for banks such as Citi, JP Morgan, Goldman Sachs and Morgan Stanley with significant capital markets businesses,” Fitch said.

In the capital markets segment, investment banking activity has dropped sharply this year, but that has been at least partly offset by trading revenues that were better than expected, it noted.

“Market volatility during the quarter provided favourable conditions for trading revenues, notably in fixed income, commodity and currencies (FICC) but had the opposite effect on investment banking activity, which led to a sharp decline in revenues,” it noted.

Meanwhile, first quarter revenues were “more positive ” for banks that are more lending-oriented, Fitch said.

“Spread-based revenues were up [quarter over quarter] and [year over year], stemming mostly from loan growth and higher market interest rates,” the report said.

These kinds of revenues should continue to grow as interest rates rise, Fitch noted.

“Provision expenses showed signs of normalization for the sector amid continued strong underlying credit trends,” Fitch added.

Finally, the report noted that most of the banks’ capital ratios declined in the quarter due to “continued capital distributions to shareholders, [risk weighted asset] growth and other factors.”