By Tatiana Bautzer
       NEW YORK, Jan 9 (Reuters) - U.S. banking giants are
expected this week to report lower profits for the fourth
quarter after they set money aside to cover souring loans while
also paying more to depositors.
    The largest banks' net interest income (NII) - or the
difference between what they earn on loans and pay out on
deposits - probably fell on average 10% in the fourth quarter,
Goldman Sachs analysts said. An estimated 15% decline in trading
revenue will also weigh on earnings, they said.
    JPMorgan Chase, Bank of America, Citigroup
 and Wells Fargo report fourth-quarter and full
year results on Friday.
    Banks' profits will likely be squeezed as they set aside
more reserves in the fourth quarter to prepare for customers to
default on the loans. Profits could also be curbed by banks
paying more to keep depositors' money in their accounts.
    Bank of America's earnings per share (EPS) are expected to
drop 23% in the fourth quarter versus a year earlier, while EPS
at Citigroup and Morgan Stanley will fall 25% and 17%,
respectively, according to analyst estimates compiled by LSEG.
EPS is predicted to slide 3% for JPMorgan and 2% for Goldman
Sachs.

By contrast, earnings at Wells Fargo will benefit from a
reduction in expenses, including some related to regulatory
orders. 
        Separately, Citigroup investors will look for signs that
its 
    sweeping overhaul
     will raise returns. And Morgan Stanley's 
    new CEO Ted Pick
     will provide a strategy update, his first since taking the
helm at the start of the year.
  
    "There is a lot of macroeconomic uncertainty now and it's
hard to predict the trajectory for net interest income," said
Bank of America analyst Ebrahim Poonawala. He cited the debate
about the potential pace of Federal Reserve interest rate cuts
this year as one of the key questions hanging over markets. 
    The health of the U.S. consumer is also in focus as
lower-income customers fall behind on payments in greater
numbers. Although delinquencies are increasing, the strong job
market has kept a lid on loan defaults, Poonawala added. 
    Last year was a strong year for bank profits despite the
expected slump in fourth quarter net income. Earnings at the
largest banks probably rose 5%, compared with a 5% decline for
regional banks, Poonawala estimated.
    "I think 2024 will be a transition year, and will set the
stage for the resumption of higher loan growth in 2025," said
Jason Goldberg, an analyst at Barclays. 
    Looking ahead, the slide in NII in the fourth quarter could
extend into the first half of this year as banks tighten their
lending standards while lower income consumers' finances become
increasingly stretched, Goldman banking analyst Richard Ramsden
said. 
    "We could have the opposite effect on the second half as
interest rates go down," he added.   
    Banks are expected to conserve capital this year and stay
cautious on buying back their own shares as they brace for
potentially stricter rules known as the Basel endgame that are
open for public comment, analysts said. The upcoming U.S.
presidential election could also change the direction of
regulation.
    Banks had been accumulating paper losses in their portfolios
because they held securities that lost value when interest rates
rose. As the Fed moves closer to reducing rates, the securities
portfolios will regain value, helping to bolster banks' capital,
Goldman's Ramsden said. 
    
        
 EARNINGS PER SHARE IN 4Q   
 BANK               EPS 4Q 2023*    EPS 4Q 2022
 JPMorgan           3.46            3.57
 Bank of America    0.65            0.85
 Citigroup          0.87            1.16
 Wells Fargo        1.21            0.67
 Goldman Sachs      3.25            3.32
 Morgan Stanley     1.04            1.26
 * LSEG mean estimates

    
 (Reporting by Tatiana Bautzer, additional reporting by Saeed
Azhar and Niket Nishant, editing by Lananh Nguyen and Nick
Zieminski)