HSBC head of US financials research Saul Martinez sits down with Julie Hyman and Josh Lipton on Market Domination to discuss what investors can expect from Big Bank earnings, with Citi (C), Bank of America(BAC), Goldman Sachs (GS), and Morgan Stanley (MS) set to report this week.

“With all these banks, the question is: Do we see a trough in net interest income in the second half or in early 2025? And do we start to see growth again in net interest income next year? That's a critical question because if you do start to see net interest income growing, which is the biggest revenue component of banks, you start to get an outlook that allows banks to post positive operating leverage and improving EPS momentum and ROTC momentum,” Martinez tells Yahoo Finance.

“In the case of Bank of America, especially tomorrow, that's a key driver. What they say about net interest income in the fourth quarter and into 2025, and whether they continue to see that improving in 2025 is going to be a really important determinant for how the share price reacts.”

Given JPMorgan’s strong investment banking results reported last week, Martinez says he’s cautiously optimistic about Morgan Stanley and Goldman Sachs's upcoming reports. He explains, “We favor investment banks over traditional banks.”

“We think the earnings revision cycle, which has been negative for a few years, is inflecting. We think [in] the wealth management business there’s some positive signs there in terms of net new fee-generating assets. But the investment banking side is a big piece of that as well. We think they are positively leveraged [for an] improving investment banking cycle. We still think we’re in the middle innings of that improvement, and that could last a couple of years.” Martinez names Goldman and Morgan Stanley as “primary beneficiaries.”

Ahead of Citi’s quarterly results, Martinez says he’ll be watching for “dynamics that point to a better profitability outlook over the next couple of years,” especially given “there's a lot of stuff that is in their control expenses.”

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This post was written by Naomi Buchanan.