11:25 AM EDT, 10/18/2024 (MT Newswires) -- The Big Four banks in the US reported quarterly earnings that topped Wall Street estimates, bolstering prospects that the Federal Reserve is guiding the economy successfully to a soft landing, analysts said.

The third-quarter profit beats by JPMorgan ( JPM ) , Bank of America ( BAC ) , Citigroup ( C ) and Wells Fargo (WFC) eased concerns that the Fed's strategy on interest rates would push the country into a recession. The central bank cut rates last month for the first time after a series of increases since March 2022 to tame inflation.

"Sentiment and commentary around banks are notably strong," Suryansh Sharma, an equity analyst at Morningstar, said in an interview with MT Newswires. "Except for [net interest margin] compression in some cases, everything looks reasonably decent for banks in the near term, as the market is completely sold on the soft-landing story."

Though loan growth remains tepid, the big banks generally reported improvements in deposit and credit costs, solid fee income and mildly higher expenses, Sharma said.

Investors focused on net interest income, the largest source of revenue at the banks. NII measures the difference between the amount of interest banks earn on loans versus how much they pay on deposits.

The Big Four benefited from the high-rate environment of the past two years, generating a combined record $250 billion in 2023, Bloomberg News reported.

The halcyon NII days appeared to be over after the Fed in September cut its benchmark rate by 50 basis points. Earlier that month, JPMorgan ( JPM ) Chief Operating Officer Daniel Pinto said the Wall Street consensus for his company's 2025 NII of $90 billion "is not very reasonable because the rate expectation is lower by 250 basis points. So I think that number will be lower."

The statement drove JPMorgan ( JPM ) shares down and focused the spotlight on the Big Four's NII this earnings season. On Oct. 11, JPMorgan ( JPM ) and Wells Fargo ( WFC ) both reported earnings that topped estimates by analysts, and "NII outlooks that were not as bad as feared," Raymond James said in a report.

The consensus for JPMorgan's ( JPM ) 2025 NII, excluding markets, of $87 billion "still looks a little toppy, but it's definitely in the ballpark," Chief Financial Officer Jeremy Barnum said on an earnings call with analysts.

Wells Fargo ( WFC ) expects Q4 NII to be mostly in line with the Q3 figure of $11.69 billion, which fell 2% from Q2 and implies a 9% decline in full-year NII from 2023.

"Based on this expectation, we believe we are close to the trough," CFO Michael Santomassimo said on a call with analysts.

Bank of America ( BAC ) on Tuesday reported NII of $14.1 billion in the third quarter, up from $13.9 billion in the previous quarter, confirming prior guidance that the second quarter would be the NII nadir.

"Four quarters ago, we called that a bottom would occur in our net interest income in the second quarter of 2024," Chief Executive Officer Brian Moynihan said on a call with analysts. "Even with the rate environment that has bounced around quite a bit since we said that, we got it right, as NII indeed troughed in the second quarter."

In the fourth quarter, Bank of America ( BAC ) expects NII to grow to $14.3 billion, assuming two rate cuts of 25 basis points in November and December by the Fed, CFO Alastair Borthwick said.

Citigroup ( C ) on Tuesday reported NII of $13.36 billion in the third quarter, down from $13.49 billion in previous quarter and $13.83 billion a year earlier. Excluding markets, NII was up $500 million from Q2 to $11.96 billion. CFO Mark Mason said the company increased its guidance "a tad bit," calling for full-year 2024 NII ex-markets to be down slightly from a year earlier and for fourth-quarter NII ex-markets to be flat sequentially.

JPMorgan ( JPM ) reported third-quarter diluted earnings per share of $4.37 and revenue of $42.65 billion, topping estimates from analysts polled by Capital IQ of $3.98 a share and $41.65 billion. Wells Fargo ( WFC ) reported diluted EPS of $1.42 and revenue of $20.37 billion, compared with consensus estimates of $1.29 a share and $20.46 billion. Bank of America ( BAC ) reported diluted EPS of $0.81 and revenue of $25.35 billion, topping estimates of $0.76 a share and $25.23 billion. Citigroup ( C ) reported diluted EPS of $1.51 and revenue of $20.32 billion, up from estimates of $1.31 a share and $19.82 billion.

The strong results were driven partly by outsized performances from the investment banking divisions, especially debt underwriting, Morningstar's Sharma said. Bank of America ( BAC ), Citigroup ( C ), JPMorgan ( JPM ) and Wells Fargo ( WFC ) reported investment bank fee growth of 18%, 44%, 31% and 37%, respectively, from a year earlier.

"Investment banking outperformed expectations not only this quarter, but to a large extent, last quarter," Sharma said. "The numbers are pretty close to consider mid-cycle levels," meaning in line with expectations for a normal year, he said.

The data and guidance from the large banks combined to paint a sanguine picture of the banking industry and the US economy.

"Whatever you want to call the US [landing], the sentiment around it is more optimistic, supported by the recent positive payrolls report, and we see a healthy yet more discerning US consumer and the US corporate sector on the front foot," Citigroup ( C ) CEO Jane Fraser said on a call with analysts.

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