Bank Earnings—What to Watch: Analyst

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When JPMorgan Chase and Wells Fargo kick off bank earnings season Friday, one analyst will be watching to see how their fixed-income segments and the housing rebound have impacted the banks' reports.

Betsy Graseck, a large-cap banking analyst at Morgan Stanley, is also interested in the forward look for net interest margin at each company.

"I think it will be fine this quarter, but the question is how are you going to reinvest in a declining yield environment?" Graseck asked.

Graseck's estimate for JPMorgan's earnings excluding items is $1.16 a share. Wall Street is forecasting $1.24 per share, according to a consensus estimate from Thomson Reuters.

"I think a range — anything between $1.15 to $1.20 — is in the ballpark, " she said. "Anything above $1.20 is great, and below is not so good."

JPMorgan's quarterly release comes two days after a report that the company's chief financial officer plans to step down within the next couple of quarters. In late July, the company announced it would reshuffle several executives' positions .

"You might say, 'Gee, that's a lot of turnover in a short period of time, ' " Graseck said about the recent management turnovers. "Remember we have had, I would argue, a generation's worth of experience in the last five years."

An improving economy and housing industry will drive banks to release some of their loan loss reserves (the money that banks have set aside for future loan losses), Graseck predicted.

Following a $25 billion national mortgage settlement, the nation's largest mortgage lenders have been modifying some loans — one requirement of the deal.

"And as they modify, they're going to be recognizing losses and releasing the reserves associated with those losses, " she said.

The improving housing industry also fueled Graseck's "overweight" rating on Wells Fargo shares.

Her earnings forecast is 88 cents a share, which is slightly above the Thomson Reuters consensus estimate of 87 cents per share.

"This is another one where as housing improves slightly, we've got an opportunity to benefit in particular from Wells and the (loan) origination cycle, " she said.

Bank earnings season continues next week with reports from Citigroup on Monday, Goldman Sachs on Tuesday, Bank of America on Wednesday, and Morgan Stanley on Thursday.

—By's Katie Little; Follow Her on Twitter @katie_little

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Morgan Stanley owns shares of JPMorgan Chase and Wells Fargo.