Big U.S. banks are riding a somewhat unexpected wave this year, making a pretty penny from their lending ventures. It’s like the stars aligned for them when whispers began that the Federal Reserve might not be as cut-happy with interest rates as initially feared.

I’m talking modest trims instead of deep cuts, a situation where less really is more for the likes of JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo. These giants have been charging more for loans ever since the Fed started hiking rates, but haven’t been as generous with what they pay out to depositors.

It’s a classic move, but hey, who’s judging?

Now, back in January, these bankers were bracing for a hit to their profit margins in 2024. They saw a storm brewing with potential rate cuts and savvy savers hunting for juicier deposit accounts. Fast forward a bit, and the storm seems more like a light drizzle.

The market consensus now is the Fed might only cut rates two or three times over 2024, not the half-dozen times previously thought. This twist in the tale has analysts saying some banks might even jazz up their forecasts as they start dishing out their first-quarter report cards.

Riding the Wave of Interest

Despite this rosy outlook on net interest income, it isn’t all sunshine and rainbows. Analysts have their brows furrowed, predicting a 14% dip in net income across the six banking giants for the first quarter of 2024. It seems even banks aren’t immune to the fallout from playing hero, with added fees from the Federal Deposit Insurance Corporation’s rescue missions last year nibbling at their profits.

Then there’s the whole ordeal of setting aside more cash for those “just in case” scenarios, as borrowing costs inch up. Charge-offs are expected to leap, but according to the number-crunchers, it’s nothing these banks can’t handle.

On the flip side, trading revenues are seeing a bit of a slump, the lowest start since the year we all wish to forget, 2020. It’s not the frenzy-filled marketplace it used to be, but there’s a silver lining with investment banking revenues showing signs of life again.

The big plays are happening in mergers and acquisitions, with the big-buck deals doubling in the first quarter. However, the bankers won’t see the full color of their money until these deals cross the finish line.

A Bumpy Ride Ahead?

Then came the cold shower – U.S. bank shares took a nosedive in premarket trading after some hotter-than-hot March inflation data. This little tidbit throws a wet blanket on hopes for those rate cuts to come any sooner. The big players, including JPMorgan Chase and Bank of America, saw their shares dip over 1%, with regional banks also feeling the heat. The rising consumer price index last month hints that the Fed might keep borrowing costs on the higher side for longer, stirring up worries about loan demands and potential defaults.

In this drama, there’s a subplot with consumer delinquencies possibly ticking up, but experts don’t see it derailing the earnings train significantly. The banks have been navigating through murkier waters, with a notable performance dip expected in Wall Street deal-making compared to the retail and corporate banking sectors, which seem to be holding their own.

Citigroup, Wells Fargo, and JPMorgan are currently basking in the glory of being the year’s top performers in the S&P 500 banks index. The banking sector is buzzing with cautious optimism as mergers and acquisitions start to pick up after hitting a decade low globally last year. The conversation is lively, with capital market activities gaining momentum, hinting at a possible resurgence in earnings for those heavily reliant on investment banking revenues.

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