Introduction
The recent volatility in the U.S. banking sector has resulted in significant declines in bank shares, triggered by President Donald Trump's policies.Context
On April 3, shares of major U.S. banks reached multi-month lows, with Citigroup experiencing an 11% decline. Other notable banks such as Bank of America, Morgan Stanley, Goldman Sachs, and Wells Fargo each slipped 9%, while JPMorgan Chase, the largest U.S. bank, fell 7%. This downturn marks a stark contrast to the optimistic projections the industry had for 2025, which were largely based on anticipated mergers and acquisitions deregulation and lower corporate taxes.Developments
The current uncertainty surrounding President Trump's tariffs on imports has significantly impacted economy-sensitive bank stocks, raising concerns over a potential global trade war as various countries express their intent to retaliate. Jim Mitchell, senior analyst at Seaport Research Partners, noted that the uncertainty regarding the indirect effects of widespread tariff increases on economic activity is likely to dominate the outlook for bank stocks in the near term.As companies hesitate to pursue acquisitions amidst tariff concerns, investment banking income is expected to remain under pressure. Analysts have cautioned that weakening consumer confidence may lead to reduced spending and decreased demand for loans. Furthermore, regional banks may face greater challenges than larger institutions, which can mitigate some pressures through their trading operations, potentially benefiting from market volatility.
J.P. Morgan analysts expressed caution regarding bank stocks, indicating a preference for Global Systemically Important Banks (GSIBs) over regional banks. They highlighted that large bank stocks have experienced substantial declines, with valuations appearing "attractive." Notably, the KBW Regional Banking Index fell 8.7% on Thursday, marking its lowest point since August of the previous year.