By Nupur Anand
       NEW YORK, April 10 (Reuters) - As U.S. banking giants
prepare to report slightly lower first-quarter profits,
investors will focus on how much more income executives expect
from interest payments this year.
    JPMorgan Chase is likely to post a 4% drop in 
earnings per share (EPS) from the year-ago quarter on Friday,
analysts estimated in an LSEG survey. Declines of 35% and 11%
are forecast for Citigroup and Wells Fargo, respectively.
    Goldman Sachs is expected on Monday to post a 13%
slide. On Tuesday, Bank of America is likely to show a
18% decline, while Morgan Stanley is seen announcing a 2%
drop, analysts said.
    Analysts are weighing how the path of U.S. interest rates
will bolster banks' net interest income (NII), or the difference
between what lenders earn on loans and pay out for deposits. 
    "This is the overarching theme this quarter and we are
likely to see an upside for earnings," said Kenneth Leon,
research director at CFRA Research.
        Banks have reaped record profits in recent quarters as
the Federal Reserve started raising interest rates in March 2022
to tame inflation. Their NII outlook is closely watched as a
barometer for future earnings.
  
        Executives' commentary this quarter will be more closely
scrutinized as the market scales back expectations for the Fed
to 
    cut rates three times
     this year from earlier estimates of six.
  
    JPMorgan, Bank of America and Wells Fargo could
benefit from higher-for-longer rates that could boost their NII
forecasts, Morgan Stanley analysts led by Betsy Graseck wrote in
a note.
    But elevated rates could also strain the finances of
consumers who are increasingly falling behind on loan payments,
prompting lenders to set aside more money to cover potential
losses.
    "There could be an uptick in delinquencies and the
consumer-led growth could moderate, but I do not expect it to
impact earnings in a big way," said Chris Marinac, director of
research at financial adviser Janney Montgomery Scott.
        Banks serving both retail customers and corporations
have fared slightly better in the first quarter than rivals
focused on Wall Street dealmaking which has been in the doldrums
for several quarters.
  
    Citigroup, Wells Fargo and JPMorgan have been the
best-performing stocks so far this year in the S&P 500 banks
index.
    So far in 2024, Citigroup shares are up 19.9% as of
Tuesday's close, Wells Fargo is about 17% higher and JPMorgan
has risen nearly 16% against a roughly 13% gain for the S&P 500
banks index.
    Mergers and acquisitions have shown signs of rebounding in
the first quarter after falling to their lowest level in 10
years globally in 2023. Bankers have expressed more optimism
about a recovery this year.
    "The dialogue is going to be very strong this quarter for
Wall Street banks," said KBW analyst David Konrad, referring to
merger talks. "Capital market activity is picking up and it is
going in the right direction."
    A revival would boost earnings at Goldman Sachs and Morgan
Stanley, whose earnings are more reliant on investment banking
revenue.
        The outlook for trading will also be an important
indicator, Graseck said.    
  
    JPMorgan, the largest U.S. lender, said in February that its
markets revenue could decline 5% to 10% in the first quarter. 
    At Citigroup, investors are awaiting updates from CEO Jane
Fraser on her growth strategy after she started a sweeping
reorganization in September and laid off 5,000 employees through
the end of the first quarter. 
    "This is time for progress," said Marinac, expressing
optimism about bank prospects. "I don't think there was much to
expect in the first year, but we're through that first year and
I think there should be some modest progress."
        Leadership will also be in focus at JPMorgan, where the
board has 
    identified potential successors
     to CEO Jamie Dimon, paving the way for an eventual
leadership transition at the largest U.S. bank. 
  
        Elsewhere, investors are tracking Wells Fargo's
progress to meet government demands to fix its problems and
lessen its regulatory punishments, including an 
    asset cap
     that limits its growth. 

 BANK        EPS Q1      EPS Q1
             2024*       2023
 JPMorgan    4.15        4.32
 Chase                   
 Bank of     0.77        0.94
 America                 
 Citigroup   1.20        1.86
 Wells       1.09        1.23
 Fargo                   
 Goldman     8.62        9.87
 Sachs                   
 Morgan      1.66        1.70
 Stanley                 
 *LSEG mean estimates

 (Reporting by Nupur Anand in New York; Editing by Lananh Nguyen
and Richard Chang)