Tariff-Induced Provisions: A Divide Between Deutsche Bank and HSBC?

The global banking sector is facing a new battleground: the creeping influence of tariffs on credit risk. Recent earnings reports from Deutsche Bank and HSBC offer a stark contrast in how two major institutions are navigating this challenge. While Deutsche Bank has openly acknowledged tariffs as a driver of rising loan loss provisions, HSBC has sidestepped the issue entirely, opting to blame broader macroeconomic headwinds instead. This divergence raises critical questions for investors: How significant are tariffs as a systemic risk? And which banks are best positioned to weather the storm?

Deutsche Bank: A Cautionary Tale of Tariff Risks

Deutsche Bank’s Q1 2025 results painted a sobering picture. The bank reported that tariffs have contributed to elevated Stage 1 and Stage 2 loan loss provisions, pushing total provisions above consensus estimates. Management warned that these risks could further strain results, with full-year 2025 projections potentially being overly optimistic. Analysts at RBC Capital Markets noted this acknowledgment as “realistic,” emphasizing that tariffs are no longer a distant threat but a tangible drag on credit quality.

The bank’s Stage 1 provisions—which apply to loans that are performing but face rising risks—now sit at a 5-year high. This suggests that tariffs are not only impacting borrowers’ ability to repay but are also altering the risk calculus for lenders. For instance, industries like automotive, manufacturing, and logistics, which are heavily exposed to trade disputes, now carry higher default probabilities.

The implications for investors are clear: Deutsche’s transparent disclosure highlights a proactive risk management strategy but also signals vulnerability to trade-related volatility. The bank’s shares have underperformed peers this year, down 8% year-to-date, reflecting market skepticism about its ability to navigate these risks.

HSBC: Silence Speaks Volumes

In contrast, HSBC’s Q1 results offered no mention of tariffs in its provision disclosures. Instead, the bank cited macroeconomic uncertainty as the primary driver of a 30% year-over-year surge in Expected Credit Loss (ECL) charges to €900 million. While HSBC’s adjusted profit before tax rose 11% to €9.8 billion, its revenue declined 13% year-over-year to €17.6 billion, underscoring broader challenges.

The absence of tariff-related commentary from HSBC is notable. Unlike Deutsche, HSBC has emphasized its cost discipline and capital strength (with a CET1 ratio of 14.7%) as buffers against uncertainty. Its strategic focus on wealth management and transaction banking also positions it to capitalize on structural trends, even as tariffs loom. However, investors must ask: Is HSBC’s silence a sign of confidence—or a failure to address material risks?

The Broader Implications for Investors

The divergence between Deutsche and HSBC reflects deeper strategic choices. Deutsche’s transparency, while commendable, paints it as more exposed to trade-related shocks. HSBC’s silence, meanwhile, could mask vulnerabilities or indicate superior risk hedging.

Looking ahead, tariffs’ impact will depend on geopolitical dynamics. If trade tensions escalate, Deutsche’s provisions could climb further, squeezing margins. Conversely, HSBC’s diversified revenue streams and stronger capital base may offer better resilience.

Analysts at JPMorgan estimate that a 10% increase in tariffs could raise Stage 1 provisions at European banks by 15-20%, with Deutsche—given its geographic concentration—being disproportionately affected. Meanwhile, HSBC’s global footprint may dilute such risks.

Conclusion: Navigating the Tariff Crossroads

The tariff question is no longer hypothetical—it is reshaping credit risk landscapes. Deutsche Bank’s candid disclosures provide a roadmap for assessing exposure, while HSBC’s silence invites scrutiny.

Investors should prioritize banks with:
1. Diversified revenue streams (HSBC’s wealth and transaction banking divisions)
2. Strong capital buffers (HSBC’s 14.7% CET1 vs. Deutsche’s 12.8%)
3. Transparent risk reporting (Deutsche’s proactive stance vs. HSBC’s omission)

While tariffs remain a wildcard, the writing is on the wall: banks that fail to quantify and disclose these risks may face trust deficits—and valuation discounts—in a climate of heightened uncertainty. For now, the sector’s tariff test is far from over.

This analysis underscores a simple truth: in banking, transparency is not just a virtue—it’s a survival strategy.