By Saeed Azhar and Niket  Nishant
       NEW YORK, July 9 (Reuters) - Some of the largest U.S.
banks will probably report weaker profits for the second quarter
as they earn less from interest payments and set aside more
money to cover deteriorating loans, analysts said.
    As banks kick off earnings season on Friday, analysts
predict provisions could rise for potential losses on commercial
and industrial (C&I) loans, as well as those on commercial real
estate.
    "There is a credit cycle during every economic expansion,"
said Betsy Graseck, a banking analyst at Morgan Stanley. "We're
conservatively baking in normalization of the credit cycle," she
said, referring to typical loss levels on bad loans across
consumer and commercial loans.
    C&I loans pose greater risks to major banks than they did in
2023, according to the Federal Reserve's latest health check
last month. Under the Fed's stress-test scenario, C&I loss rates
are projected to rise to 8.1%, from 6.7% in last year's exam. 
    Despite the lackluster outlook, Wall Street divisions should
benefit from a pickup in dealmaking.
    Merger and acquisition volumes hit $1.6 trillion globally in
the first half of the year, up 20% from a year earlier, Dealogic
data showed. Equity capital market volumes climbed 10% during
the same period.
    Analysts will also pay close attention to banks' commentary
on interest income, as market participants increasingly expect
the Fed to cut interest rates in the coming months. 
    Banks have had an easier time hanging on to customer money
as rates stabilize, dampening competition for deposits.
     "All the deposit customers that were going to move their
deposits for a higher rate in a money market account or at an
internet bank have probably done it," said Chris Kotowski, a
banking analyst at Oppenheimer. Banks can then put those
deposits to work by repricing loans at higher levels.
    Industrywide, net interest income (NII), or the difference
between what banks earn on loans and pay out for deposits, will
likely reach a trough in the second or third quarters before
starting to climb as banks negotiate fresh loans at relatively
higher rates, he said. 
    Interest rates had slumped during the pandemic, which pushed
mortgage rates to historic lows in 2021 and auto loans to
multi-year lows, before the Fed started raising rates in early
2022.
        "Fixed assets that would include mortgages and auto
loans are going to re-price from a very low rate," Kotowski
said. 
    Here are the main factors to watch for, according to
analysts, as the six biggest U.S. banks announce their results:
  
JPMORGAN
    The largest U.S. lender is expected to report a 13% decline
in earnings per share (EPS) in the second quarter versus a year
earlier as it invests more in the company, causing expenses to
climb.
    
BANK OF AMERICA
    The second-biggest U.S. bank will likely post a 9% drop in
EPS, hurt by lower NII.
    
WELLS FARGO
    Wells Fargo's EPS is expected to climb 3%, buoyed by
investment-banking fees and lower provisions for credit losses.
Still, its NII is predicted to remain lackluster.
    
CITIGROUP
    Profits are forecast to rise, propelled by strength in the
services division that Citi calls its "crown jewel," and higher
investment banking fees.
    
GOLDMAN SACHS 
    Earnings are expected to more than double versus the second
quarter of 2023, when they dropped to a three-year low. Goldman
will probably benefit from a revival in deals, combined with
fewer writedowns for its consumer business. 
    
MORGAN STANLEY    
    Rival Morgan Stanley's EPS is expected to climb 33%, lifted
by rising activity in mergers, acquisitions and capital markets.

 BANK        EPS Q2      EPS Q2
             2024        2023
 JPMorgan     4.15        4.75
 Chase                   
 Bank of      0.80        0.88
 America                 
 Citigroup    1.39        1.33
 Wells        1.29        1.25
 Fargo                   
 Goldman      8.48        3.08
 Sachs                   
 Morgan       1.65        1.24
 Stanley                 
 *LSEG mean estimates

 (Reporting Saeed Azhar and Niket Nishant, editing by Lananh
Nguyen and Rod Nickel)