Tariff Tensions Cloud Outlook for Regional Banks Ahead of Q1 Results
As regional banks prepare to release their first-quarter earnings next week, the spotlight is shifting to growing concerns around asset quality, largely driven by renewed uncertainty from fluctuating U.S. tariffs.
President Donald Trump’s recent decision to suspend many of the newly proposed tariffs for 90 days offered a temporary lift to regional bank stocks midweek. Still, analysts caution that the broader trade dispute is far from over.
“The trade war hasn’t ended—it’s just paused,” said Art Hogan, chief market strategist at B. Riley Wealth. “We’re not back to pre-tariff normalcy.”
This back-and-forth on tariffs stands in stark contrast to the optimism that marked the start of the year. Back then, expectations for robust loan growth and revived deal-making under a business-friendly administration fueled a rally across the banking sector.
Now, that sentiment is fading. J.P. Morgan analysts noted that while the immediate pressure from tariffs has lessened, regional banks are still likely to face headwinds in the months ahead. Uncertainty is expected to dampen borrowing as clients wait for clearer signals on trade policy.
Investors are also being urged to monitor growing tensions with China closely. Although some of the steepest tariffs were eased, the U.S. still hiked duties on Chinese imports to 125% from 104%. Trump has accused China of disrespecting global markets, adding fuel to the geopolitical fire.
With the world’s two largest economies at odds, economic growth could slow—a dangerous scenario for regional banks that rely on local lending. Unlike their larger counterparts, these institutions have limited trading operations, leaving them exposed during periods of heightened volatility.
Since the announcement of the new tariffs, the KBW Regional Banking Index (.KRX) has dropped 7.5% through Wednesday’s close.
Real Risks Loom
Among the regional lenders set to report next week are Fifth Third (FITB.O), Citizens Financial (CFG.N), and Regions Financial (RF.N). Analysts expect that investor focus will be less on quarterly numbers and more on forward-looking commentary from executives.
Markets have been especially volatile amid Trump’s tariff reversals, and investors are eager to hear how banks plan to navigate the shifting landscape.
One major area of concern is credit loss provisions—funds that banks reserve to cover potential loan defaults. Analysts project these provisions will jump nearly 28% on average in Q1 across the top 10 U.S. regional banks, according to LSEG data. For the full year, that figure is expected to rise about 14%, reversing earlier forecasts of reserve reductions.
The return of uncertainty also clouds the sector’s fragile recovery from last year’s crisis of confidence, which was sparked by worries over exposure to commercial real estate (CRE). Hopes for CRE stabilization had grown amid rate cuts by the Federal Reserve, but economic turbulence is now threatening that outlook.
“CRE has been a pressure point for a while,” analysts at Raymond James wrote in a recent preview. “Falling rates were supposed to provide some relief, but growing macro uncertainty is challenging that narrative.”
They added, “We briefly lived in an ‘everything is awesome’ post-election rally. That optimism, however, may have been premature.”