U.S. Banking Quarterly Comment —1Q19 (Fed’s Long Pause Colors Expectations for Rest of 2019)

...Generally Weaker First Quarter: First quarter 2019 returns at the 19 large U.S. banks in this quarterly report were generally weaker than trailing five-quarter averages, according to Fitch Ratings. The banks' return on average assets (ROA) was lower than the five-quarter moving average and the median ROA for the group fell 1bp from 1Q18. Modest loan loss reserve builds, slowing net revenue growth and higher expenses related to technology and longer-term efficiency plans challenged bottom lines somewhat during the quarter in what continues to be a benign credit environment, Fitch noted. Dovish Fed Credit Neutral: At the end of 1Q19, the Federal Reserve implied that it would keep its policy rate at current levels for the remainder of 2019. While a long pause in rate hikes could provide relief to increasing funding costs for banks, we ultimately believe that net revenue could be pressured as yields on loans and securities will likely remain flat into 2020. Positively, the rate pause may also...

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