The U.S. banking sector shook off an array of challenges — from tariff turmoil to dimming economic growth expectations and sharply higher policy uncertainty — in the second quarter, according to Fitch Ratings.
In a new report, the rating agency said most of the large U.S. banks reported higher earnings and wider net interest margins in the second quarter. Median net income was up 12% year-over-year for the 20 largest banks, it said.
“Net interest income increased due to asset repricing amid a steeper yield curve, lower deposit costs and an unexpected recovery in loan growth, which averaged 3% above the year-ago level,” it reported.
These trends are expected to persist in the months ahead, with the banks’ net interest margins gradually returning to their pre-pandemic levels, Fitch said.
Credit quality also “remained solid,” it said, as loan loss provisions were stable and the median net charge-off ratio edged lower.
“Banks indicated that tariff-sensitive exposures remain manageable,” Fitch said. “Ongoing stability in commercial real estate and consumer lending suggests the industry has moved past the peak of credit normalization that began in late 2021. However, negative employment forecast revisions could increase pressure on consumer loans and credit cards…”
The banks’ other business lines also posted gains in the second quarter, with median non-interest revenues rising 7% year-over-year, “driven by robust trading results, higher wealth management assets under supervision and improved investment banking activity,” it noted.
For the big five Wall Street firms — Bank of America, Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley — aggregate fixed-income trading revenues rose by 15%, and equity trading revenues were up 7% from the prior year, Fitch said.
“Investment banking performance improved, with aggregate M&A advisory revenues rising 21% year-over-year among these banks,” it said.
Most of the banks also reaffirmed their full-year outlooks, Fitch noted — despite gloomier economic forecasts amid the headwinds of erratic tariff policy, regulatory changes and rising geopolitical tensions.
Against that backdrop, the banks’ regulatory capital ratios remained above their pre-pandemic levels, even as they declined slightly on a quarter-over-quarter basis.
“Nearly half the banks recently announced or implemented dividend increases,” the rating agency noted.