At many large banks, fee income has increased while overall expenses have decreased, it was said.

“Headwinds to earnings and revenues have clearly eased as adverse trends in deposit pricing and provision growth have slowed significantly,” the report said.

After rising 300 basis points since the start of 2022, the cost of interest-bearing deposits remained little changed in the second quarter, rising just four basis points, Fitch noted.

“As a result, the majority of banks reported an improvement in net interest income (quarter-on-quarter) in the second quarter, marking a possible turnaround after several quarters of consecutive declines,” it said.

In addition, high provisions for loan losses would “cushion the now known burdens on commercial real estate and consumer credit portfolios without having to create oversized provisions on a significant scale,” it said.

Fitch said fee income at major banks rose more sharply than it had in three years due to the recovery in investment banking.

Investment banking fees at major Wall Street banks rose 40 percent year-on-year, it said, while overall revenue from bond issuance rose 56 percent.

“Banks also reported healthy investment banking pipelines and an improvement in market sentiment towards issuance, indicating the potential for sustained fee growth in the second half of the year,” it said.

As pressure on net interest income eases and fee income increases, Fitch expects stronger and broader earnings growth in the second half of the year.

In addition to the strength in investment banking, sales and trading revenues were also strong in the second quarter, “particularly in the equity capital markets,” Fitch said.

Income from fees related to asset and wealth management was also “generally stronger” as the assets managed or administered grew, it said.