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Consumer banks face earnings pressure

Between tightening margins and the Fed not delivering on interest rate hike expectations, it's going to be a tough quarter for banks.

Bank teller handling money
Thierry Dosogne | Getty Images

They're singing the same song on Wall Street that they are in Flushing, Queens: "Just wait 'til next year!"

While beleaguered fans of the New York Mets are starting off the season hankering for another trip to the postseason, bankers are just hoping one day the Federal Reserve will follow through on predictions that it will raise interest rates, and provide a badly needed boost to Wall Street banks' net interest margins.

The largest Wall Street banks are all facing lower earnings projections for the first quarter of 2016 than what they reported the prior year. For consumer banks, Wells Fargo's consensus estimates are for 99 cents a share; average estimates for Bank of America expect 25 cents a share in earnings; and Citigroup estimates predict the bank will report earnings of $1.14 a share. JPMorgan Chase consensus estimates are for earnings of $1.27 a share.

U.S. consumer banks had begun the year following economists' expectations that the Fed would continue on the path it began last year, of raising interest rates. Higher interest rates translate into higher net interest income for top banks, which host hundreds of billions in consumer and client deposits. But as a pall was cast over the market to begin 2016, the Fed had to retreat from its expected rate hikes, and that in turn will cost consumer banks.

"Net interest margins will be very much in focus," for earnings this quarter, said Deutsche Bank large-cap banks analyst Matt O'Connor.

The four largest consumer banks in the U.S. — JPMorgan Chase, Wells Fargo, Citigroup and Bank of America — house more than $900 billion at the Fed, which paid out about $5.85 billion in interest last year, according to data from S&P Global Market Intelligence.

It could be worse.

As part of Wall Street banks' annual stress tests, Fed officials said they would consider the prospect of cutting rates, and going negative. That would reverse the flow of billions in interest earned by top consumer banks. In other words, banks would be paying the Fed to hold their money.

Read MoreFed's Kashkari: hard to believe U.S. rates

But, after the stock market swoon that began the year, and the subsequent recovery, Fed officials are still touting their expectations that rates will increase — not fall. The only place negative interest rates have materialized is on banks' regulatory stress tests, where many Wall Street firms have been forced to creatively implement a monumental policy change in different ways across certain customers.

While big banks can't count on anything but policymakers to return the net interest income they have been missing out on since the financial crisis, some say this year's housing data can in part be tracked back to the Fed's accommodative rate setting.

"Initially, mortgage rates were set to rise this year," said Erik Oja, U.S. banks analyst at S&P Global Market Intelligence.

Now, analysts think mortgage revenue could become one of the scant examples of banks' success in 2016.

Read MoreU.S. pending home sales hit seven-month high in February

Both auto sales and mortgage businesses have performed relatively well despite a turbulent start to 2016. And although virtually all banks began the year on a sour note, watching share performance decline, consumer banks could rebound on the strength of their most traditional businesses, analysts say.

"Residential mortgage will offset losses in investment banking," said Christopher Whalen, senior managing director at the Kroll Bond Rating Agency. "The reason Wells Fargo, Bank of America and JPMorgan Chase and Citigroup are so big, is because of residential mortgage origination."