U.S. bank earnings are generally positive, but they don’t yet match the increased optimism in the economy, according to a new report from Fitch Ratings Inc.
U.S. banks reported higher earnings in the fourth quarter of 2016 on a year-over-year basis, the credit-rating agency reports. “However, increased business optimism and the bank stock rally has not translated into meaningful growth yet for U.S. banks,” it says.
Indeed, earnings “were generally weaker” compared with the third quarter of 2016, the Fitch report says. “For banks with large loan books, median loan growth was just 0.6% during the quarter, with consumer loans accounting for most of the growth.
“The improvement in business confidence with the stabilizing economy and stock market rally has yet to translate into commercial loan growth according to many of the large banks, while other banks are deliberately avoiding loans without the requisite risk-adjusted returns,” the Fitch report adds.
However, several banks saw net interest margins improve, the report says, and that increased trading activity following the U.S. election “helped to drive capital markets growth for the five large global trading and universal banks,” including Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley Inc.
Finally, the Fitch report notes that capital ratios declined on a linked-quarter basis for most U.S. banks, reversing capital ratio improvements, although capital levels remain “relatively high in absolute terms.”