U.S. Banks Anticipate 22% Trading Revenue Boost from Trump Tariffs

American banks are poised to benefit from the trade tariff policies announced by Donald Trump, with several major institutions expected to see an increase in trading revenues. This surge is largely attributed to the market volatility that followed Trump's "liberation day" tariff announcement in April, which led to record trading days for some banks.

Analysts predict that all six major U.S. banks, set to release their second-quarter earnings next week, will report growth in trading income. This growth is primarily driven by the heightened market activity and uncertainty caused by the tariff policies. In the equity trading sector, Goldman Sachs is anticipated to lead with an estimated trading revenue of 3.7 billion dollars, closely followed by Morgan Stanley. In the fixed income, currency, and commodities trading sectors, JPMorgan Chase is expected to top the list with a trading revenue of 5.2 billion dollars for the quarter, followed by Citigroup.

Beyond the immediate trading revenue boost, the focus will be on how these banks plan to leverage the regulatory changes in Washington to drive further profit growth. The U.S. regulatory bodies are considering easing capital rules, which could help banks reclaim market share from non-bank market makers like Jane Street Group and Citadel Securities, who have seen rapid growth in recent years. Specifically, lowering the supplementary leverage ratio (SLR) would enable banks to hold more U.S. Treasury securities and increase their capacity for high-profit businesses. The recent stress test results from the Federal Reserve, combined with the proposed SLR adjustments, could release up to 70 billion dollars in capital from the six major U.S. banks.

Investors will be keenly watching for any guidance from bank executives on how this additional capital will be allocated, potentially directing it towards competitive but high-demand areas such as prime brokerage services. The key question, as noted by analysts, is whether banks like Goldman Sachs and Morgan Stanley can regain market share from non-bank institutions. This could be a significant impact of the reduced supplementary leverage ratio.

The performance of investment banks next week is expected to be mixed, with the uncertainty from Trump's trade war causing a significant slowdown in trading activities during the second quarter. While some banks may maintain income growth through large transactions completed this quarter, others may struggle. It is anticipated that Goldman Sachs, Morgan Stanley, Citigroup, and Wells Fargo will see an increase in investment banking revenue compared to the same period last year, while JPMorgan Chase and Bank of America may experience a decline.

Analysts expect Goldman Sachs' financial advisory fees to grow by 22%, while Bank of America's may decrease by 17%. Last month, Bank of America's CEO noted that the bank's investment banking revenue would decline more sharply, but the growth in trading revenue would offset this decrease. Investors will also be looking for guidance from executives on the scale of their investment banking channels, which were reported to be near historical highs when the banks released their first-quarter earnings.

Bank performance will also serve as a key indicator of consumer health. While credit card default rates are not expected to rise significantly, concerns about certain economic trends mean banks may set aside more funds to cover potential future losses, known as "provisioning." There are ongoing worries that tariffs could increase overall economic inflation, affecting consumers' and businesses' ability to repay loans. However, this largely depends on the content of any trade agreements signed before the crucial deadline at the end of next month.