US banks see higher earnings on capital market activity, mortgage refinancing

US dollars

Increased capital market activity drove stronger earnings and increased profitability for major US banks in the third quarter of last year, according to ratings agency Fitch Ratings.

Fitch said that strong debt issuance, tighter fixed income spreads, and an equity market rally fueled a healthy rebound in capital markets revenues from depressed levels in Q3 ’11 and subdued activity in the prior quarter.

Core profitability for the major banks was slightly improved and better than expected during the quarter.

The mortgage refinance boom further contributed to stronger revenues for the quarter. This reflects the effects of theFederal Reserve’s quantitative easing measures, which have brought long-term rates down to very low levels.

Although refinance activity will continue into 2013, Fitch expects that it will level off and thus current levels are not considered sustainable.

The larger US banks began disclosure of expected Basel III Tier I common ratios in Q3. Although this guidance is not finalized, Fitch expects that most rated banks will be in compliance ahead of full implementation.

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