Recession and Tariff Fears Could Overshadow Big Bank Earnings

This week, America’s biggest banks are set to report their quarterly earnings.

But as Reuters reported Tuesday (April 8), investors are less likely to be focused on profits than on the banks’ view of the economy amid steep U.S. tariffs.

Wells Fargo analyst Mike Mayo said the biggest impact of the tariffs in the quarters to come “will be higher reserves for loan losses as the odds of recession rise.”

As Reuters notes, banks are likely to reserve billions for potential loan defaults in the quarters ahead. Loan losses will probably increase this year due to newly revised accounting rules that require banks to account for losses over the full terms of the loans.

“Banks are a reflection of the economy — if the economy worsens, their results will follow,” said Stephen Biggar, director of financial institutions at Argus Research.

In addition to more reserves to cover losses on existing loans, Biggar expects banks to scale back lending as they see higher risks.

The report argues that banks are likely to face questions during earnings calls about the market selloff that has erased trillions of dollars from global stock indexes. Bank stocks were some of the hardest hit, after surging earlier in the year on optimism about a jump in dealmaking.

This week will see Wells Fargo, Citigroup and JPMorgan Chase report their earnings, all happening on Friday (April 11). JPMorgan CEO Jamie Dimon has warned that the tariffs could have lasting negative consequences, such as inflation and recession.

“The quicker this issue is resolved, the better because some of the negative effects increase cumulatively over time and would be hard to reverse,” Dimon wrote in his annual shareholder letter. “In the short run, I see this as one large additional straw on the camel’s back.”

As PYMNTS noted in a report Tuesday on the impact of the tariffs on the FinTech sector, some observers have an even more pessimistic view.

For example, BlackRock CEO Larry Fink notes that many U.S. business leaders believe the country is already in a recession.

“Where do FinTechs fit in the larger picture? Analysts remain cautious about FinTech growth prospects, citing economic uncertainty and regulatory pressures,” PYMNTS wrote.

“Despite this, there is optimism about the sector’s long-term potential, driven by innovations in artificial intelligence and blockchain, as well as a robust employment market and receding inflation. However, that outlook is clouded by the current economic turmoil.”