Big banks' record trading streak overshadowed by tariffs

Tariff upheaval and recession fears are taking the shine off what's expected to be another quarter of near-record trading revenue for the biggest U.S. banks.

JPMorgan Chase , Bank of America , Citigroup , Goldman Sachs Group and Morgan Stanley are projected to post a combined $34.8 billion haul from their trading businesses when the industry's top lenders begin releasing first-quarter results on Friday, the most for that period in at least seven years, according to data compiled by Bloomberg.

Still, "we expect banks to strike a cautious tone," Bank of America analysts led by Ebrahim Poonawala wrote in a note, predicting executives will emphasize "downside risks driven by policy uncertainties."

The tariffs President Donald Trump announced last week erased trillions of dollars in value from the U.S. stock market, with financial stocks among the largest casualties. Since then, shares of Citigroup and Goldman Sachs have both slumped about 18%, while Morgan Stanley lost 16%.

So investors are less interested in looking back at last quarter and more eager to hear how the industry will grapple with the knock-on effects of tariffs and the growing likelihood of a recession.

"While the near-term trading revenue environment remains healthy, there remains uncertainty around whether we are at peak trading," Goldman Sachs analysts led by Richard Ramsden wrote in a note, adding that the hoped-for recovery for investment-banking businesses was also now in doubt.

The top banks' fourth-quarter results were also driven by windfalls from equity-trading desks due to stock market volatility. Back then, investors were optimistic that a second Trump presidency would bring policies that would stimulate the economy and boost mergers and acquisitions. With tariff fallout intensifying, that optimism is fading, but for banks the market chaos translates to more revenue from facilitating trades.

JPMorgan Chief Executive Officer Jamie Dimon is one executive sounding the alarm. In his annual shareholder letter on Monday, he urged a quick resolution to the uncertainties sparked by the tariffs and warned against a potentially "disastrous" fragmentation of America's long-term economic alliances.

"The quicker this issue is resolved the better, because some of the negative effects increase cumulatively over time and would be hard to reverse," the CEO wrote.

For banks, part of the fear is that the same market turbulence that's boosting trading demand can be detrimental to another major revenue line — lending. Although tariffs wouldn't cause operational disruptions to a bank as much as to an automaker, an economic contraction could weaken demand for lending and impair clients' ability to pay for loans. Those factors determine how much banks make by lending, measured by net interest income.

"If you had asked me in mid-March, I would have confidently said it's too early to change the projections for the full year and that banks were in a position to reiterate the full-year guidance given what's transpired," Stephens analyst Terry McEvoy said in an interview. "But I don't have that same level of confidence now."

While the Federal Reserve lowered its benchmark interest rate for the first time in almost five years in September, loan demand has remained tepid.

"While we have seen healthy activity, it hasn't necessarily manifested itself in loan growth," JPMorgan Chief Operating Officer Jennifer Piepszak said at an investor conference in February.

While the largest firms, known as global systemically important banks, can offset lending pressure with diversified income streams — trading revenue, for example — many regional banks don't have that ability.

"With this uncertain outlook, we are cautious on bank stocks and we prefer GSIBs to regionals overall, especially those with more offset from trading and prefer higher quality banks," the JPMorgan analysts wrote.

Investment banking is another area where Wall Street had been predicting a boom, fueled by "animal spirits" after Trump's election. That has so far failed to materialize. The long-awaited mergers-and-acquisitions recovery has been disappointing so far, while initial public offerings are stalled again amid the equity-market rout.

M&A announcements and new equity issuance are "certainly on pause" as clients assess the Trump administration's policy changes, Morgan Stanley Co-President Dan Simkowitz said in mid-March. Still, the activity "just gets paused, it doesn't get deleted," he said.

Analysts estimate that JPMorgan will post the biggest gains in investment-banking fees in the group, at 12%, followed by more than 10% at Morgan Stanley.