Strong refi-driven mortgage banking results and a rebound in capital markets business drove surprisingly solid revenue growth for the large U.S. banks, according to Fitch Ratings.
Though revenues were generally higher for most banks, spread income was flat or down given the prolonged low interest rate environment. The uneven economic recovery produced modest organic loan growth in 1Q12. Banks reported more normalized levels of C&I loan growth (down from the robust activity reported last quarter), which was offset by lower consumer balances and continued CRE runoff.
Based on new regulatory guidance related to second liens, several institutions reported an increase in home equity nonperforming balances. Excluding this increase, nonaccruing loans were lower on a sequential basis. Fitch does not view this as a material shift in the performance of these loans or the reserving methodology.
Fitch would probably revisit its loss estimates on second lien loans if there is a sufficient increase in principal modification activity.
Exposure to home equity loans remains of Fitch’s top concerns for U.S. banks, particularly for the largest institutions where most of these loans are concentrated. While Fitch believes there is a possibility that losses in these portfolios could be material, current ratings reflect Fitch’s assumption that losses will remain above historical levels for several years.
For details, see the full Fitch report U.S. Banking Quarterly Comment: 1Q12
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