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JP Morgan, City and Wells Fargo all reporting earnings this morning. The key data points right here, net interest income. That's all you got to remember. JP Morgan's profits surged 25% from a year ago, but net interest income fell for the second consecutive quarter by 1%. Wells Fargo's sliding as its net in interest income fell 9%, lowest level in two years, and City initially emerging as the winner this morning, thanks to its wealth management business. Here with more, we've got Saul Martinez, who's the HSBC head of US financials researcher. And Saul, it's great to catch up with you, take some time this morning. First and foremost, perhaps for those trying to figure out why net interest income is such a big marker to keep tabs on for these banks, how much kind of weight do do analysts and and heads of research like yourself give that marker versus others this quarter?

Well, yeah, no, thanks for having me. It it's it's it's really, really important. Um, they're banks. The the bulk of revenues for most banks is net interest income. It is, um, how, you know, your interest income minus your your your interest expense. And that is, um, that has been under some pressure for banks more recently and recent quarters. So, as you, you know, as interest rates, um, uh, rose, banks benefited that for from that. Most banks are asset sensitive, meaning their assets reprice quicker than their liabilities. But as the Fed has been on pause, the funding side of the equation has caught up and it's caught up even as loan growth has been, um, stagnant. So a major narrative and a major, um, call for for a lot of banks and and you know, it depends to what degree this this is going to be important. But the major positive case for a lot of banks is that you're close to seeing a trough in quarterly net interest income and that the back end of the year, you're going to start to see some sequential growth. And I think with this quarter, I I think, you know, your your general, um, comment is is is is right. Um, I think the negative reaction, especially for Wells Fargo, who is more of a traditional bank by the way, um, and maybe more like commercial banks and the regional banks who are going to report, they are still seeing some of those headwinds. Deposit costs are slowing the the increase, but they're still increasing. And loan growth is still under some pressure. And Wells Fargo, um, I think there were some hopes that they would increase their guidance of 7 to 9% decline. They said they were likely going to be at the high end of that decline. So it it it's not a surprise that Wells is underperforming. And the other thing here, though, is, you know, and I think it is important to note, though, JP Morgan and City Group, obviously are more diversified. They have more markets businesses. Those businesses did very, very well. And, um, and and, um, you know, that that is, you know, I think probably the the bigger takeaways, the markets businesses doing substantially better than sort of traditional banking at least at first, at least with this first wave of of results.

So I know I I know that this is just the first wave of results, but at least for the big banks that reported today, city was the only big bank that you had a buy rating on here this morning. When you take a look at city's report here, some on the street were taking a bit of an issue just in terms of, I guess when you look underneath the hood at some of the weakness that we did see within city, but overall, looks like the street reacting positively to this report. I'm curious, is this then strengthen, do you think your base case? They actually look down about just about 2%. Do you still think you as confident here that city is among the best positioned at least at current valuation levels?

Uh, yeah, I do. I think, you know, their net net, we think, you know, I think we termed it mostly positive initial take, and I think that's, you know, as you kind of look through the results, um, investment banking, very strong, sales and trading, very strong. Um, the wealth management business, which is is is going to be really important for for turnaround that, um, you know, did well. Uh, credit quality was was resilient. There were some concerns about, you know, some of their credit card, you know, the credit card credit quality, especially in, uh, the retail services business. That seems to be holding in. So a lot of good things there. I think where you can take issue, um, if you look at that interest income, um, and this gets into the weeds a little bit, but if you look at that interest income excluding sort of the volatile markets related components to it, it did decline sequentially a bit. Um, so that is, you know, and there is there is some question about how sustainable the strength in investment banking is, and I think that's true for, you know, for a lot of folks. And so so the

is sort of a a mixed, um, you know, sort of a mixed uh uh result, but I I would say net net positive, especially given that these valuations, especially given the view that you're coming from a low ROTCE. Um, the bar is low for city can if they can get through uh closer to 10% over the next couple years at these valuations, there there is uh considerable upside. So I think it reinforces the thesis, but it's not universally um positive either. And I think that's why you're seeing a bit of a volatility in the in the reaction there.

So we only got about 30 seconds left. I'm wondering from your purview, what is loan demand telling us right now about either the strength of the consumer or even the strength of small businesses?

Yeah, I mean it's a it's a I think, you know, I know we don't have a lot of time, but it I think on the commercial side, the the the limited loan growth does reflect restrictive monetary policy to some degree. Uh, corporate what you hear a lot is corporates are not using lines of credit. Credit the those are priced off short-term interest rates and short-term interest rates are high. So the the demand and the utilization remains low and that's a headwind. For cards, it's still growing on the consumer side. Credit cards are still growing disproportionately fast, but it is moderating. Uh, it is moderating versus elevated levels. So I think you're seeing, you know, a it's telling the broader, I think it's reinforcing the broader narrative that we are seeing a slowdown, but the economy is generally pretty resilient. And you see that in terms of credit quality as well.

Saul, great to speak with you here this morning. Saul Martinez, who's the head of US Financial Research over at HSBC. Have a great weekend, Saul.

You too.