Hermes: US money-centre banks Q2 review
With the majority of the US money-center banks having reported for Q2 2015, Filippo Alloatti, senior analyst at Hermes Credit, shared his initial thoughts on this set of numbers.
In general, this good quarter is one more step along the recovery path for banks who are rebuilding equity and maintaining conservative balance sheets. We take some comfort in this. Indeed, we have not seen credit spreads weaken on supply concerns because the confidence gained from improving credit quality eclipses fear of supply, as shown by stable-to-improving credit spreads.
In general, Net Interest Margins (NIM) are stabilising; loan growth remains steady (if pedestrian); traditional fees are rebounding from a soft Q1; capital markets revenues were down slightly; and cost efforts are bearing fruit.
As banks anticipate their total loss-absorbing capital (TLAC) targets, issuance is picking up pace. The negative impact in the market of an expected surge in issuance is broadly offset by solid fundamental performance.
Asset quality indicators are incrementally improving as part of the continuation of an industry-wide trend: consumer delinquencies, non-performing assets and charge-offs are all down sequentially at the large banks.
Large US banks remain asset sensitive. A 100-bp parallel shift higher in the curve would generate $3.9bn (€3.6bn) in additional Net Interest Income (NII) over the next 12 months at Bank of America and some $2bn (€1.8bn) at Citi.