In mid-April, Fitch Ratings released its analysis of first-quarter 2024 earnings from major U.S. banks, indicating reasons for measured optimism. While overall earnings remained under pressure due to elevated costs and compressed lending margins, the firm noted a bright spot in growing fee-based revenue streams and a slowdown in loan-loss provisions. These developments point to improved cost control and net interest income resilience—encouraging signs for financial sector stability and profitability.
Fitch described the fee-income pickup as “cautious yet encouraging,” emphasizing strong performance in areas such as mortgage servicing, wealth management, and underwriting. Investment banking, in particular, showed renewed strength: Goldman Sachs reported a 21% year-over-year rise in non-interest income, while Wells Fargo and Morgan Stanley reported 17% and 10% gains, respectively. Regional banks with capital markets operations, such as KeyCorp, Citizens Financial Group and U.S. Bancorp, also posted solid single-digit increases in fee revenue. This diversification is critical as net-interest income remains constrained by high deposit costs and borrowing pressures.
Fitch highlighted that many banks are now facing reduced loan-loss provisioning compared to previous quarters, a signal that credit quality pressures may be easing. Loan-loss provisions had ramped up rapidly through mid-2022, but Q1 2024 showed signs of stabilization. This moderation, combined with disciplined expense management, may help banks preserve earnings as economic conditions evolve.
The data reveal that most of the twenty largest U.S. banks reported year-over-year earnings declines, reflecting ongoing margin pressures. Net-interest income—traditionally the largest income source—was under strain. Yet American Express and Discover managed significant NII growth of 26% and 11%, respectively, while JPMorgan and Citigroup each delivered modest positive growth. Only a few banks revised upward their NII guidance, which suggests confidence in navigating a “higher-for-longer” interest rate environment.
Expense control continues to play a key role in dampening profitability headwinds. Many banks reported year-over-year operating expense increases at or below inflation. Notably, global banks like JPMorgan added headcount due to its First Republic acquisition, yet even these banks managed to rein in costs overall. Fitch stated that lower compensation costs could further slow expense growth throughout the remainder of the year.
The report, however, warned that rising deposit costs remain a drag. Shifts toward interest-bearing deposits have increased funding expenses, especially for regional banks, exerting ongoing pressure on net-interest margins. Commercial real estate exposures, particularly in the office segment, were flagged as another concern, though regional instances appear isolated rather than systemic.
Fitch’s analysis supports the narrative that these early signs of fee-driven diversification and slowing provisioning may stabilize bank profits in the near term—even amid persistent funding and margin challenges. Its overall sector outlook remains “deteriorating” for 2024, but the tone shifted to a more neutral stance in recent quarters, reflecting lessening pressure on earnings and credit.
The safeguarding effect of fee income is evident in investment banking and capital markets divisions, where underwriting and advisory services are beginning to rebound. Sequential trends suggest these areas could deliver meaningful support through the year, particularly if interest rates remain elevated and economic growth moderates.
Analysts continue to emphasize the importance of diversified revenue streams. For bank investors, the ability to offset margin compression with reliable non-interest income is critical. As Fitch noted, without this balance, banks remain vulnerable to downside risks as credit conditions and costs evolve.
Looking forward, Fitch expects capital markets activity to remain a bright spot. With markets gaining clarity and volatility re-emerging, underwriting volumes and advisory engagements may continue expanding. Yet growth remains tentative: loan demand remains tepid, expenses—though controlled—will require continuous focus, and credit stress, while contained, persists in segments like CRE.
Banks with robust capital profiles and diverse business lines are positioned to better weather these headwinds. JPMorgan, U.S. Bancorp, Goldman Sachs, and Citigroup—as examples—appear well-prepared to absorb interest income fluctuations thanks to strong fee-generation capacity and disciplined expense control.
In summary, Fitch’s first-quarter analysis signals cautious optimism. Fee income recovery and slowed provisioning suggest a potential inflection point, where banks can shift away from battling margin erosion toward building sustainable earnings. The path ahead remains sensitive to macroeconomic pressures—particularly funding costs and CRE exposures—but underlying resilience is emerging.
If these trends persist, it would support the view that the banking sector can maintain stability in the face of interest rate and credit headwinds. Investors will remain attentive to fee trends, net-interest margin performance, and credit, to assess whether Q1’s cautious optimism evolves into sustained financial sector strength.
