Despite the turmoil in the subprime mortgage market, the five largest U.S. investment banks reported strong quarterly earnings in the second quarter, according to Fitch Ratings.Fitch attributed the positive results to four factors: product diversity, hedging, growing geographic diversity, and capital sufficiency. "While mortgage exposure exists throughout investment banks' franchises, each firm says that fewer than 5% of total net revenues are attributable to subprime mortgage activities," said Leslie Bright, a Fitch senior director. "Since May, unusual levels of credit deterioration have been concentrated in the subprime space, impacting underwriting and primary trading markets. Contagion to the alt-A and prime sectors has greater possibility, as does fallout in the secondary market following pending rate resets of vintage mortgage pools."
