(Bloomberg) -- Just months ago, Wall Street’s biggest banks took turns warning a record run for their biggest source of revenue was poised to end. Now, some are expected to revise up their forecasts for earnings from lending.

With the market predicting fewer interest rate cuts than previously anticipated, analysts expect some larger banks will increase their 2024 guidance for net interest income — the difference between what banks earn on assets and what they pay on debts — when they start reporting earnings on Friday. 

JPMorgan Chase & Co. is attracting the most speculation over whether it will raise its NII guidance — which analysts argue is conservative at $90 billion given current expectations around the trajectory of rates. Wells Fargo & Co. is another that’s sparked debate over potentially revising its outlook.

“The first three things that people will be watching will be JPMorgan’s NII guide, JPMorgan’s NII guide and JPMorgan’s NII guide,” R. Scott Siefers, an analyst at Piper Sandler & Co., said in an interview. “It’s a very conservative guide: The question is really how much would JPMorgan raise it.”

The will-they-won’t-they guidance question comes after the Federal Reserve’s rapid rate hikes burnished the revenue of banks including JPMorgan, Bank of America Corp., Citigroup Inc. and Wells Fargo, which together scored a record $250 billion of net interest income last year. In January — when markets were penciling in as many as six rate cuts — they all predicted some downward movement in the metric.

Some of the big, asset sensitive banks may well boost their guidance, Morgan Stanley’s Betsy Graseck said, while UBS Securities’ Erika Najarian cited optimism among investors for such moves.

Read More: Banks Say 2023 Was the Peak After $250 Billion Interest Haul

And while they were a boon for the bigger banks, higher rates caused a lot of pain for many regional lenders — with some even collapsing after piling into Treasury bonds which declined in value as rates rose. Banks also had to start passing rates on to depositors or risk losing customers to higher-yielding options — a pressure which hurt regional banks more. 

“At the most base level, the universals are better geared toward higher-for-longer, or higher interest rates, and the regionals are better geared toward rate cuts with gradations within there,” Siefers said. 

Rates Uncertainty

Whatever analyst expectations, bank bosses could be reticent to boost their outlooks in the first quarter while the rate picture remains in flux. JPMorgan could also choose to hold off on revising its outlook until its investor day, later in May. 

The US economy has brushed aside fears of recession amid strong consumer spending and a robust labor market which just posted its biggest US jobs gain in nearly a year. Consumer prices rose more than expected in March, all increasing chances Fed officials will further delay cutting interest rates from a two-decade high and consider fewer reductions this year than anticipated. 

Shares of lenders slid on Wednesday, led by regional banks. Bank of America, Wells Fargo and Citigroup all dropped the most since February, while JPMorgan’s decline was more muted. 

The stocks of the biggest US banks have been outpacing the broader market so far this year. The trio of lenders reporting Friday, along with Bank of America, have all gained more than the S&P 500’s advance in that period. 

Read More: US Core CPI Tops Forecasts Again, Likely Delaying Fed Rate Cuts

“There has been a negative narrative of higher rates being bad for the banking industry, because of concerns around a potential hard landing,” Ebrahim Poonawala of Bank of America Global Research said in an interview. “But what is getting missed is the rates being higher for longer is because the economy is strong. This quarter will debunk some of that negativity.”

On Monday, JPMorgan Chief Executive Officer Jamie Dimon delivered a warning on the economy, saying US interest rates could hit 8% or more amid inflationary pressures. He also cast doubt on market expectations for a soft landing, which he said would be a lot lower than the current 70% to 80%.

For now, net interest income is expected to climb a modest 1% during the first quarter at the four biggest US banks, analyst estimates show. That’s driven in large part by JPMorgan’s nearly 12% projected increase from the previous year.

Deal Rebound

The expectation for rate cuts has also fueled a pick up in deals following a persistent slump, as investors and companies became more comfortable with the trajectory. Capital markets activity too is expected to show gains. 

“The majority of key leading M&A indicators are flashing green, with M&A announcements picking up over the last two quarters,” Morgan Stanley’s Graseck said in a note. “We expect deal announcements to accelerate, with completions building through 2024.”

And the market for initial public offerings, though slower than the peak pace of 2021, is picking up. Goldman Sachs Group Inc. said in February that IPO activity will continue to improve this year.

Investment banking wallets could be up between 10% to 15% in the first three months of the year at the biggest banks, according to analyst estimates. Bank of America’s investment banking unit is on track to deliver a 15% revenue gain during the first quarter, chief financial officer Alastair Borthwick said in March.

Still, the challenging regulatory environment, upcoming US election and continued geopolitical uncertainty are reasons to be cautious even after these encouraging signs, KBW’s Christopher McGratty said. 

Loans, Credit

As rates and inflation remained higher through the first quarter, lending will likely stay subdued, according to analysts. Credit card balances have ticked up as pent-up savings from consumers’ accounts fade. 

Meanwhile, the potential for less rate-cuts and a key presidential election in the US “weakens the argument for a reacceleration” of loan growth in the second half of the year, according to UBS’s Najarian.

Still, net-charge offs will remain broadly stable from the fourth-quarter levels for each of the four biggest US lenders.

“We’re not really seeing anywhere near the deterioration we would’ve thought,” Piper Sandler’s Siefers said. “Now if the Fed just stays here for a long, long time, then all bets are off at some point and we’ll likely see more visible deterioration. But right now I think banks are generally characterizing things as normalizing.”

(Updates with Wednesday trading and economic data in 10th paragraph.)

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