Big banks' earnings in focus as recession fears swirl

A volatile kickoff to bank earnings season is heightening concerns that escalating trade tensions may push the US economy closer to a recession, as investors look for signs of strain in financial institutions’ first-quarter results.

JPMorgan, Wells Fargo, and Morgan Stanley are slated to report results on April 11, days after a widespread market selloff wiped out much of the year’s gains for major bank stocks.

The drop followed aggressive tariff measures announced by President Donald Trump, which reignited fears of an economic slowdown and pressured financial markets globally.

Despite relatively stable economic conditions through March 31, analysts are questioning whether recent market dislocations will be reflected in forward guidance from banks. Observers are closely watching for any cuts to net interest income expectations, capital markets revenue forecasts, or broader earnings benchmarks.

“We now look for deeper earnings-per-share cuts as analysts incorporate lower rates, slower growth and higher provisions into models,” said Truist analyst John McDonald, as per MarketWatch. “But we don’t expect [earnings] estimates to incorporate full-fledged recession as their base case, so for now, the debate about recession odds should continue to take place more in bank stock valuation multiples than in estimate revisions.”

While trading and wealth management divisions may have held steady last quarter, subdued investment banking activity is expected to drag on overall performance.

Morgan Stanley analysts, in an April 7 note, downgraded their outlook on large- and mid-cap banks, citing a higher probability of recession stemming from the new tariff regime. They also revised their view of financial advisor and consumer finance stocks to reflect heightened risks.

“Trade developments move our base case to a significant gross domestic product slowdown, with risk of our bear case recession scenario rising sharply,” the strategists said, pointing to the impact of tariffs on American consumers.

"Expect slower GDP growth with rising economic uncertainty to push out the nascent capital markets rebound, incrementally slow loan growth, and drive net charge offs across consumer and commercial loans slightly above our prior estimates."

The bank downgraded Goldman Sachs to equal-weight from overweight due to its particular sensitivity to declines in deal-making revenues.

According to FactSet data, analysts expect JPMorgan to post adjusted earnings of $4.64 per share for the first quarter, up from $4.44 a year ago, on revenue of $43.91 billion. Wells Fargo is projected to report earnings of $1.23 a share, with revenue slightly down at $20.76 billion. Morgan Stanley’s forecasted profit stands at $2.23 per share, up from $2.02 last year.

Behind the scenes, senior leaders at top banks have reportedly held private discussions to assess the broader impact of the tariffs. According to sources cited by Reuters, executives from JPMorgan, Bank of America, Citigroup, HSBC and Barclays participated in a call organized by the Bank Policy Institute to share concerns over potential economic fallout.

Since the new tariffs were unveiled on April 2, the KBW Bank Index has fallen more than 15 percent. Analysts say bank leadership may now offer guidance toward the lower end of prior loan growth ranges, given rising macroeconomic headwinds.