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Third-quarter earnings at large U.S. banks got a boost from reserve releases in the quarter, as credit loss concerns remained subdued, says Fitch Ratings, noting that banks have drawn down reserves as the economic recovery has continued.

“Reserve releases have clearly been supported by strong underlying economic performance in the U.S., unemployment data and consumer payment trends,” Fitch said.

However, the agency noted that several of the big banks in America — including Wells Fargo, JPMorgan, and Bank of America (BofA) — expressed lingering uncertainty due to labour market conditions, inflation and ongoing Covid-19 cases, which factor into their current reserve levels.

“To the extent uncertainties dissipate, we would expect incremental reserve releases over the next few quarters, absent meaningful loan growth,” Fitch said.

In the meantime, the agency noted that net revenues also showed signs of stabilization in the third quarter.

“Fee income-generating business lines such as wealth and asset management and investment banking also supported a more overall stable revenue picture, with robust M&A volumes at Goldman Sachs, Morgan Stanley and JP Morgan,” the report noted.

Loan balances grew modestly from the prior quarter, Fitch said, “led primarily by consumer asset classes such as credit card and auto lending.”

The banks’ balance sheets, including their capital and liquidity positions, were also robust in the third quarter, Fitch reported. “Regulatory capital levels remain above those seen pre-pandemic even with capital returns ramping up during the quarter.”

In particular, Wells Fargo and BofA paid out more than 100% of net income in dividends and share buybacks in Q3, Fitch said, adding, “This will likely continue if loan balances keep declining or growth is sluggish.”