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An expected boom year for investment banks is on hold as jitters about the economy, along with President Trump’s tariffs, have caused U.S. stocks to tumble. Banks, which have seen their shares plunge in the past week, are scheduled to kick off first quarter earnings Friday.
David Konrad, a KBW equity research analyst, said there were hopes last fall that lower regulations and a surge in animal spirits would unlock both the IPO market and M&A activity in early 2025, according to an April 3 note. Konrad has now lowered Q1 estimates across the board for the majority of globally systemically important banks, or G-SIBS, due to an expected 5% drop quarter over quarter in investment banking. Volatility from Trump’s tariffs have caused IPOs and many mergers to go on hold, Fortune has reported.
“Although we expect a solid quarter compared to first quarter 2024, volatility in interest rates, sticky inflation and uncertainty surrounding tariffs drove declining equity markets and muted lending and investment banking activity for the quarter,” Konrad wrote.
Mike Mayo, head of large bank research at Wells Fargo, also lowered first quarter estimates for bank stocks by 4%, according to a March 27 research note. "The key reason is a degree of paralysis from policy uncertainty that makes us more conservative for investment (slow year to date start), loans (no acceleration yet), fixed asset repricing (lower fed rates), and reserves (affected by estimated lower GDP growth),” Mayo wrote.
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JMorgan, along with Wells Fargo and Morgan Stanley, is slated to report their first quarter results Friday. Goldman Sachs, Citi and Bank of America are scheduled for next week.
Mayo said his top pick remained Citi given the bank’s expected progress from value destruction to value creation. Citi, along with Bank of America, are scheduled to report Q1 results on April 15.
Mayo expects the New York bank to report $1.90 a share, compared to consensus estimates of $1.84. Mayo said he estimates “9% year-over-year growth in trading largely because volatility and estimated end-user hedging needs remained high through the month of March.” KBW’s Konrad cut Citi’s Q1 EPS to $1.83 from $2.07 a share due to lower banking fees and higher provisions, but raised his price target for Citi to $96 from $92.
Citi has seen its stock slide about 13% since April 2, when President Trump introduced his “Liberation Day” tariffs. On Thursday, the stock was down about 4% to close at $61.59.
Mayo expects JPMorgan Chase, the nation’s largest bank, to deliver a Q1 beat. JPMorgan, in the short term, should benefit from volatility given its role as a market facilitator, while in the medium term, the bank should be among those most set to benefit from deregulation, Mayo said in a March 27 note. He boosted JPMorgan Q1 EPS estimate by 12 cents to $4.77 a share, up from consensus estimates of $4.58. KBW’s Konrad decreased his estimate by one cent to $4.65 with a price target that remains at $264.