11:20 AM EDT, 07/03/2024 (MT Newswires) -- Citigroup ( C ) , JPMorgan Chase (JPM) and Wells Fargo ( WFC ) are the "most preferred" among banking giants heading into the Q2 earnings season, Morgan Stanley said in a report Wednesday.

The firm expects banks with "high levels of excess capital and capital markets skewed business models" to outperform during earnings.

Overall Q2 earnings per share of large-cap banks, on a median basis, are expected to be inline with consensus, with higher net interest income offset by lower fee income and higher provision, Morgan Stanley said.

The spotlight for the season will also be on the timing of the banks' share buyback plans after the stress test results were announced last week, with an upside risk seen if buybacks are accelerated ahead of expectations in Q3, the firm said.

The ongoing capital markets rebound is also among the key themes for this season, it said.

"Expect both earnings and forward commentary to add further confirmation that we are still in the early stages of a multi-year global capital markets recovery off of multi-decade lows versus nominal GDP," Morgan Stanley said.

However, the firm expects loan growth to be muted this year as the net interest income improvement is seen as largely driven by deposit costs stabilizing and repricing of the back book.

"The optimism at the onset of the year for higher loan growth on the back of Fed rate cuts has mostly faded given rate cuts expectations are now pushed out to 3Q and beyond," it said.

Morgan Stanley has overweight ratings on Citigroup ( C ), JPMorgan ( JPM ) and Wells Fargo ( WFC ).

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