Bank CEOs avoid criticism of tariff policies - but agree that clients want more clarity

Dow Jones

16 Apr

MW Bank CEOs avoid criticism of tariff policies - but agree that clients want more clarity

By Steve Gelsi

First-quarter earnings from the big banks showed spending patterns have held up in April despite losses in the stock market

The big U.S. banks refrained from any sharp attacks on the tariff policies that have caused trillions of dollar of losses in the stock market in recent weeks, saying they see little sign of a recession as unemployment remains low and consumers are still spending.

The sector presented a picture of a still robust U.S. economy as banks reported first-quarter earnings in recent days, despite the roughly $6.6 trillion in stock-market value that was lost between April 2 and April 4 after President Donald Trump's "liberation day" tariff announcement.

Banks dialed back their odds of a recession after Trump paused tariffs for 90 days on April 9. Then, over the weekend, the U.S. Customs and Border Protection exempted smartphones, laptops and other consumer electronics from the steep tariffs on China.

Banking analyst Christopher Marinac of Janney said the "resiliency" of commercial lending stood out as an upside surprise among the big banks during the quarter, as well as relatively strong forecasts for the balance of the year.

"There was no signal of impending doom," Marinac said. "Loan losses were low and even though there were two fewer calendar days in the quarter, banks grew their capital. They have the flexibility to build up their reserves."

JPMorgan Chase & Co. $(JPM)$ said it continues to see economic headwinds, but the bank stuck to its forecast for net interest income of $90 billion for 2025.

Chief Executive Jamie Dimon and $Bank of America Corp(BAC-N)$. CEO Brian Moynihan said they've been in touch with the Trump administration about tariffs but didn't provide any details of their conversations.

While JPMorgan and other banks said clients are hitting the pause button on deal-making, early indications still revealed a relatively healthy second-quarter performance now underway.

Read: JPMorgan CEO Jamie Dimon warns tariffs and trade war are causing 'considerable turbulence' in the economy

Bank of America $(BAC.SI)$ said total payments across its network, including credit cards, debit cards, billpay, cash and checks, was up about 5% in the first two weeks of April, compared to 4.4% during the first quarter.

While some retailers say their sales are slower, "in the aggregate, the consumer keeps pushing money into the economy," Moynihan said on the bank's call with Wall Street analysts.

While business clients currently worry about lack of clarity on tariffs, regulations and taxes, they're still "profitable, liquid and have strong results," he said.

Overall, banks pitched themselves as a stabilizing force in the economy, with plenty of reserves on their balance sheets giving them the clout to ride out any potential downturns.

For now, the banks said the current "slow-growth" economy will continue as expected, although some expectations for expansion have been scaled back.

"Clients are looking for certainty and clarity around trade, tax and regulatory reform," Moynihan said. Every day provides a little more ... certainty."

Mark Mason, chief financial officer at Citigroup Inc. (C), said clients are preparing for economic headwinds as the market faces "a great deal of uncertainty" over trade, regulations and tax policy, but said some deals are still getting done.

The bank worked on the recent high-profile acquisition of Versace $(CPRI)$ by Prada (PRDSY) (HK:1913), as well as advising on Silver Lake's acquisition of a majority stake in Intel's $(INTC)$ Altera chip business in recent days.

Mason said the bank is seeing pent-up demand for deals as its pipeline has grown. Once clients see more clarity around supply chains, interest rates and unemployment, "we expect an active deal environment," he said.

Looking ahead, Bank of America has baked a worst-case unemployment level of 6% this year, up from about 4.1% currently. Citigroup's worst-case model is for up to 6.7% unemployment.

Even smaller banks are seeing many of the same trends.

Chis Maher, chief executive of New Jersey-based OceanFirst Financial Corp. (OCFC), said the Northeast region where the bank operates tends to have more economic stability than others in downturns, but said this potential recession would be different than most if it does happen.

"It's not from a broad, event-driven issue like COVID or the global financial crisis," he said.

Rather, the downturn may be more limited such as the dot-com bust of 2000, which mostly hit the tech sector.

As for the banks' local consumer customers, "they're alert and watching what's happening, but so far that hasn't translated into a change in consumer behavior," Maher said.

Consumers and business clients have been able to absorb the market volatility so far, but if it continues for weeks or months it could spark a recession, he added.

JPMorgan CEO Dimon said the bank now sees the chance of a recession at about 50%, rather than the 60% it was forecasting before Trump paused tariffs.

The bank raised its downside unemployment scenario to 5.8% from 5.5% in the previous quarter, and added $973 million in allowance for credit losses as a precaution.

Meanwhile, Goldman Sachs Group Inc. $(GS)$, Morgan Stanley $(MS)$ and Wells Fargo & Co. $(WFC)$ also issued cautious outlooks, but they and other banks also benefitted from an increase in trading volume around the volatility in the market.

Some of that revenue boost will likely continue in their second-quarter results due to market volatility and heavy volumes in April.

"It feels like a year already since the month of April started because of all the volatility," Janney banking analyst Marinac said. "Trading revenue is going to be higher in the second quarter with all the volatility."

While there's been a pause in heavy volume in recent days, Marinac said more frenetic trading is likely given the uncertainty around trade wars and Washington policy.

It remains to be seen if deal-making is paused or shelved for a longer time, but for now the disruption may just be temporary, he noted.

In the coming quarter, trading revenue will likely take up some of the slack from a drop in investment-banking activity, which remains at least partly in limbo, Marinac said.

Meanwhile, banks continue to engage with officials in Washington about tariffs, banking regulations and other changes, while taking a mostly diplomatic approach in their public statements about the current administration.

"Core segments of our client universe are continuing to engage," said Morgan Stanley CEO Ted Pick, according to a FactSet transcript.

"Barring the worst-case risk-off scenario, trade and geopolitical uncertainty will be priced into the markets over time and the raising, managing and allocating of the capital, the lifeblood of our business, will continue as corporates and investors cannot and will not ignore their trade, energy and technology priorities," Pick said.

Tiger Brokers

Bank CEOs avoid criticism of tariff policies - but agree that clients want more clarity

Most Discussed