JPMorgan Chase & Co. (JPM), Citigroup (C), and Wells Fargo (WFC) kicked off earnings season by reporting their first-quarter results, surpassing market expectations. However, all three banks experienced a decline in net interest income. The news led to a decrease in the stock prices of these major financial institutions on Friday morning.

According to Saul Martinez, HSBC Head of US Financials Research, JPMorgan's earnings call indicated a cautious tone regarding net interest income. Despite the change in the rate outlook, with only two rate cuts now priced in compared to the six expected in the first quarter, JPMorgan maintained its outlook for a $90 billion net interest income. The bank indicated that it might face pressure on deposit pricing and that it might be overearning on deposits. This surprised some analysts, as JPMorgan had a history of strong results and increasing its outlook.

Wells Fargo also experienced soft net interest income in the first quarter, although other aspects of its performance were strong. Investment banking across all three banks showed positive results, with JPMorgan pointing out robust debt capital markets issuance. Saul Martinez believes that this activity may have been pulled forward and its sustainability remains uncertain. Equity issuance saw an improvement, and the IPO market and deal activity hold potential for future growth if they continue.

Regarding Citigroup, investors are feeling confident in its year of transformation, as the bank is expected to deliver better cost performance over the next year. Citigroup's revenue guidance of $80 billion was maintained, and the credit and market sides performed well.

Overall, the first-quarter results of JPMorgan, Citigroup, and Wells Fargo surpassed expectations, but the decline in net interest income raised concerns. The financial sector is navigating through inflation and higher interest rates, with potential pressure on deposit pricing. As the earnings season progresses, market participants will closely monitor other key players in the banking sector to gain a comprehensive view of the industry's performance and outlook.