The head of the nation's largest bank and biggest commercial property lender summed up the current U.S. financial situation this way: “We're not in Kansas anymore: economy, inflation, interest rates, asset prices, trade wars, oh my!"
Those remarks by JPMorgan CEO Jamie Dimon this past week in an investor letter reflect the sentiments expressed by executives at Morgan Stanley, Wells Fargo and Bank of New York Mellon as they outlined how they are trying to navigate a vastly different second quarter now underway than what transpired in the first three months of the year. The first couple of weeks of the quarter have been marked by wide stock price swings and other market shifts in response to the Trump administration's fluctuating policies on tariffs.
Dimon, in a conference call set up to discuss his bank's earnings for the first quarter, was one of several banking heads to find himself discussing what's playing out this quarter. Companies are trying to balance "the potential positives of tax reform and deregulation and the potential negatives of tariffs and 'trade wars,' ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility," he said. And he's preparing the bank for "a wide range of scenarios.”
Those steps include making sure more of their potential loan losses are covered. The banks noted that the increases in the allowances were not tied to any meaningful degree of deterioration, but largely on expectations.
“The simple truth today is that we do not yet know where trade policy will settle, nor do we know what the actual transmission effects will be on the real economy,” said Ted Pick, chairman and CEO of Morgan Stanley. “As the year progresses, markets will calibrate further clarity on trade policy against the tax and deregulatory pillars of the agenda as the U.S. endeavors to rebalance the fiscal equation and assert the national interest.”
The U.S. and global economies are facing turbulence from volatility in the capital markets after the Trump administration initiated higher tariffs worldwide, followed by pausing some of the reciprocal tariffs, and intensifying its trade war with China. In the near future, these changes are increasing the risk of recession and putting inflationary pressure on imported and domestic goods, bankers said.
“After seeing clear signs of optimism at the beginning of the year, we have now seen a rapid and significant reversal of sentiment driven by uncertainty about trade and fiscal policies, which added to existing tail risks, including a variety of geopolitical tensions and conflicts,” Robin Vince, president and CEO of Bank of New York Mellon, said on a conference call Friday to discuss his bank's earnings. The Trump administration's "tariff announcements were clearly part of a broader strategy and an effort to reset trade relations between the U.S. and the rest of the world. This is an attempt at a very fundamental change.”
Reduced loan demand
While these banks reported in their earnings Friday that there have been no signs of distress, they noted that some customers are deferring strategic activity, reducing hiring and adjusting their supply chains given the unpredictability in the markets. JPMorgan, Wells Fargo and Bank of New York Mellon each reported their loan balances were up less than 1% on weak demand. Morgan Stanley did not break out the loan numbers.
"On the consumer side, the main thing that we see there is what would appear to be an amount of front loading, of spending ahead of people expecting price increases from tariffs,” said Jeremy Barnum, the chief financial officer of JPMorgan. "What we're hearing from our corporate clients is a little bit of a ‘wait and see’ attitude."
Small businesses and smaller corporations will be more challenged than the larger corporations, which have more experience and resources to deal with the changes, bankers noted.
“Business hasn't come to a halt in any way at this point, but people are certainly taking stock of what it means, figuring out where to sit and wait, and where to continue to move forward,” said Charles Scharf, CEO of Wells Fargo. “There is still a hope that the positives of regulation, positives of tax reform, the long-term positives of changes in trade, can put us in a position to feel better about the future and a growing economy. But people are cautious, so I just put it in the ‘wait and see category;’ cautious in the shorter term, but probably still bullish for the longer term.”
In anticipation of a downturn, JPMorgan upped its provision for credit losses to $3.3 billion from $2.6 billion the quarter earlier. While Wells Fargo, the nation's second-largest commercial property lender, ended the quarter with a $932 million provision down from $1.1 billion in the fourth quarter of 2024, Scharf said lower loan balances in the quarter and charge-offs of some commercial property loans mean that the current reserve balance actually covers more potential losses than in the previous quarter. Bank of New York Mellon similarly ended up with more of their potential loan losses covered than in the previous quarter.
All four banks reported year-over-year increases in net income. JPMorgan's first-quarter net income rose 9% to $14.6 billion from a year earlier; Morgan Stanley reported a 26% gain to $4.3 billion; Wells Fargo's rose 6% to $4.9 billion; and Bank of New York Mellon went up 19% to $1.22 billion.
While those bottom-line results were positive, Dimon, who has been running a major bank since the end of the prior century, readily admitted to investors that he doesn't know what's next, but that the coming months will fill in those blanks, for better or for worse: "Maybe when we're doing this call next quarter, we won't have to be guessing.”