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Big bank investors need to keep an eye on this metric, analyst says

A magnifying glass is held over a 50 subject one dollar note sheet after being printed by an intaglio printing press
Andrew Harrer | Bloomberg | Getty Images

With second-quarter earnings season on the horizon for major U.S. banks, investors should keep an eye on fixed income trading operations, Jeff Harte, a Sandler O'Neill analyst, said Monday.

"The credit markets have been a lot more favorable and that is really what hurt first quarter. I mean, we are probably a little ahead of consensus for the quarter, but if there is any potential there I think there is potential for upside surprises," Harte told CNBC's "Squawk on the Street."

Analysts who track U.S. banks say the Fed's likely rate hike delay will come back to bite Wall Street. The flattened yield curve means banks that do mortgage and consumer lending will see lower returns for longer than expected.

Harte's firm also cut its 2017 earnings estimates for Bank of America and Citigroup by 1 to 2 percent.

"Bank of America was really accounting based ... And for Citigroup it was more consistent with management's kind of current-quarter guidance on consumer revenue," he said.

The S&P 500 touched a record intraday high Monday. Both S&P Bank and S&P Regional Banking shares rose more than 1 percent Monday.

"Second quarter got a lot better and I think the outlook is still pretty good for investment banking, especially relative to how the stocks have traded," Harte said.

Still, market watchers have come down too harshly on big banks, Harte said.

"The pessimism on the revenue off of universal banks, specifically for 2016, is a little overdone," he said.