Here are Three Things To Look Out For in Big Bank Earnings

Key Takeaways

• On Friday, major U.S. banking institutions will begin reporting their quarterly results against the backdrop of the tariff turmoil that has shaken the markets and the economic.
• Analysts say that even though tariffs might not directly affect banks, they will likely have a negative impact on their customers.
• Analysts will look for clues about the future in the Big Banks' loan growth, dealmaking, and credit quality after sweeping tariffs were announced in the U.S. on April 2.

Investors will be looking to see if tariff fears are affecting the borrowing appetite and ability of clients to repay their loans. 

Banks’ first-quarter results will be important, but the fallout of April 2, which Donald Trump dubbed as “Liberation Day,” could be more significant. President Donald Trump’s proposed tariffs have increased the risk of recession and triggered a sell-off in the stock markets. This has complicated the outlook for the banking sector.

Jason Goldberg, a Barclays analyst, wrote in a Friday note that “while banks might not be directly affected by tariffs, there are industries that are.”

The latest bouts of uncertainty have hammered the bank stocks. The KBW Nasdaq Bank Index (BKX) is down about 18% this year through Tuesday’s close, outpacing the decline in the S&P 500 index, as investors worry that an economic downturn will make it hard for consumers and businesses to repay debts. The KBW Nasdaq regional bank index or KRX is down a similar amount.

Scott Siefers, an analyst at Piper Sandler and a bank, wrote that the industry’s expectations have been “completely upended” by the past week.

Siefers said that banks would have the opportunity to respond to the new backdrop and shape expectations.

First Big Bank Earnings Start Friday

Bank CEOs will share updates starting on Friday, when JPMorgan Chase (JPM),  Wells Fargo (WFC), and Morgan Stanley (MS) report their quarterly earnings. Other megabanks, such as Bank of America and Citi (C), as well as regional banks such Pittsburgh-based PNC Financial Services Group(PNC), will follow next.

JPMorgan Chase CEO Jamie Dimon warned in his annual shareholder letter on Monday that the bank is being “very careful” due to the uncertain economic environment. Although the effects of recent trade news will not be evident in banks’ past results, it is likely to affect their outlook.

Dimon said that “the sooner this issue is resolved the better.”

Here are some key themes that you should watch when banks report their earnings.

Loan Growth

Just after Trump was elected, bank CEOs were optimistic that business optimism would lead to a boom of loans. Brian Foran wrote a note Monday stating that there were “early signs” that borrowers were putting off decisions. 

Foran wrote that the growth of business loans is only 1% at the start of the year. This is not the usual 4% or 5% as it is in spring. He wrote that activity is “flattening when it should be ramping up.”

Goldberg of Barclays wrote that loan activity tends follow GDP trends, and should slow as growth expectations have declined significantly. He and other analyst will closely monitor banks’ outlooks in the coming year and whether they lower expectations for lending activity. Banks will be able earn less money this year if they make fewer loans.

Barclays analysts stated that some banks “might keep their guidance, hoping that companies will adjust now that they know the tariff background.” 

Slower Dealmaking

Not only are business loans experiencing a slowdown in growth. Dealmaking in Wall Street banks is also slowing down as corporations put off plans to acquire competitors and tap capital markets.

Banks hoped to earn large fees on these deals, which would help revenue remain high if loan growth was slow.

But several companies have reportedly delayed plans to go public, including the Buy Now, Pay Later (BNPL) company Klarna, the ticket marketplace StubHub, and the trading platform eToro. Uncertainty is also a factor in merger activity.

The Barclays report stated that pipelines for deals were “still strong”. Goldberg wrote, “The question is whether that will simply be pushed back or fall away, as a better market backdrop is likely to be needed for realisation.”

Market volatility doesn’t mean bad news for banks. Wall Street’s biggest trading desks profit from all buying and selling. Goldberg wrote that the regional banks may not have as much protection from trading, and thus be more vulnerable.

Credit Quality

If the economy is headed for darker days, borrowers will have a tougher time repaying their loans—whether for an office building or consumer credit card.

Even though a recession may not be imminent, a slower GDP growth is likely to force banks to write-off loans from borrowers that are unable to repay them. This is according to Betsy Graseck a Morgan Stanley bank analyst.

In a Monday note to clients, Graseck said that “consumers don’t have the savings to absorb these tariffs” and that they “cannot continue to spend at pre-tariff level.”

In recent years, bank losses were relatively small, despite the high interest rates that some borrowers faced. Piper Sandler Siefers writes that the future has become “more of an unknown”. 

He wrote that banks still have “solid” capital strength to weather any storm. The industry’s cushion has increased dramatically after it was found to be inadequate during the 2008 Financial Crisis, prompting regulators and lawmakers to demand bigger cushions moving forward.

Siefers, in his report, said: “We are grateful for the group’s high capital levels.”