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U.S. Bank Earnings: YoY Decline in 4Q22

Fitch Ratings reported a decline in U.S. bank earnings for 4Q22 due to several factors, such as loan loss reserve building and higher deposit costs.

FitchRatings building
FitchRatings building

Despite exceptional net interest income growth and margin expansion, bank earnings faced pressure from higher loan loss reserves and normalizing credit losses, particularly in credit cards and auto loans.

Market Volatility Impacts Bank Revenues

Market volatility had a mixed effect on bank revenues, driving YoY growth in trading revenues but causing a 53% decline in investment banking activity. However, Fitch predicts a moderate recovery in 2023 with strong pipelines and pent-up demand.

Deposit Costs and Flows in Focus

Deposit costs and flows are expected to be a major focus this year as banks experienced a third quarter of net deposit outflows and rising loan-to-deposit ratios.

Stable Outlook for U.S. Banks in 2023

Fitch's outlook for the U.S. banks sector in 2023 remains stable, with sufficient rating headroom to absorb weaker financial conditions during a moderate recession. Bank management teams' outlooks also align with Fitch's "deteriorating" fundamental outlook for 2023.