US Bank Profits Rise, But Executives Raise More Tariff Alarms

The first quarter of 2025 delivered a mixed message for U.S. banks: profits surged, but the path ahead is clouded by escalating concerns over tariffs and their economic fallout. While institutions like JPMorgan Chase, Morgan Stanley, and Wells Fargo reported record revenues in trading and fees, executives from these firms and others warned that President Trump’s aggressive tariff policies could soon undermine this momentum. The tension between short-term resilience and long-term fragility underscores a critical question for investors: Can banks weather the storm of trade uncertainty, or are they merely delaying the inevitable?

The Profit Surge—and Its Limits

The banking sector’s Q1 performance was undeniably strong. JPMorgan’s investment bank division reported a 23% revenue jump, while Morgan Stanley’s trading division hit a five-year high. Wells Fargo’s fee income rose on robust client activity, and overall profits across major banks exceeded analyst expectations. Yet executives were quick to temper optimism. JPMorgan CFO Jeremy Barnum noted that corporate clients were adopting a “wait-and-see” stance, with many delaying long-term investments. “The uncertainty around tariffs is freezing decision-making,” he said.

The Federal Reserve’s March projections added context: GDP growth is expected to dip below 2% in 2025, with inflation creeping upward—partly fueled by tariffs. Fed Chair Jerome Powell acknowledged that trade policies were contributing to supply-chain disruptions and price pressures. This dynamic creates a paradox: banks are benefiting from short-term trading volatility, but the same volatility risks destabilizing their loan portfolios and fee income over time.

Tariffs as a Double-Edged Sword

The risks are both immediate and systemic. Prime brokers, for instance, face “doom loop” scenarios similar to the 2021 Archegos collapse, as margin calls during market downturns force clients to liquidate assets. Meanwhile, sectors like consumer discretionary and technology—reliant on imported goods—are bearing the brunt of tariffs. The S&P 500 lost over $5 trillion in late March as investors priced in trade-related risks, while European and emerging-market equities surged as capital sought refuge elsewhere.

The Fragile Consumer and Corporate Balance Sheets

Consumer behavior is shifting in ways that worry lenders. JPMorgan CEO Jamie Dimon highlighted pre-purchasing trends as households stockpile items expected to rise in price. However, this could lead to overextension: KPMG’s Peter Torrente warned that tariff-driven inflation could weaken consumers’ ability to repay loans. Meanwhile, corporate clients are scaling back mergers and acquisitions, with deal volume down 18% year-over-year.

The Fed’s pause on rate cuts complicates matters further. Banks had hoped lower rates would ease deposit costs and stabilize commercial real estate portfolios, but policymakers are now hesitant to act amid inflationary pressures. JPMorgan has raised recession odds to 60%, a stark contrast to the 20% probability it cited just six months ago.

The Road Ahead: Resilience vs. Risk

For now, banks remain well-capitalized, with strong liquidity and minimal immediate defaults. However, DBRS warns that asset quality could deteriorate as loan loss provisions rise. The key question is whether the Fed’s projections of sub-2% GDP growth and rising inflation will materialize—and how quickly.

Investors should scrutinize two metrics: loan demand and fee income trends. If corporations continue to delay investments and consumers curb spending, fee revenues could stagnate. Conversely, a rebound in trade talks or tariff rollbacks might stabilize markets. Yet with Trump’s 25% levies on Canadian and Mexican goods and 10% tariffs on Chinese imports still in place, such optimism seems premature.

Conclusion: A Precarious Equilibrium

The U.S. banking sector’s Q1 performance reflects its ability to capitalize on short-term market turbulence, but the tariff-driven headwinds pose existential risks. With the Fed’s growth forecast at 1.8% and recession odds climbing, the sector’s resilience may not last.

The data tells the story:
- 60% of executives now expect a recession within 12 months (JPMorgan).
- The KBW Index fell 15% in April before rebounding on tariff delays, illustrating market fragility.
- The Fed’s GDP projection of below 2% growth is the weakest since 2020, with inflation ticking upward.

While banks are navigating the present with relative strength, prolonged trade conflicts could erode consumer spending, amplify credit losses, and prolong volatility. For investors, the choice is clear: embrace short-term gains with caution, or position for a storm that may yet break.