By Joe Wallace

It is shaping up to be another ugly day for bank stocks around the world.

-- HSBC, UBS, BNP Paribas and other major European banks posted losses early Friday, compound Thursday's tumble.

-- JPMorgan Chase, Bank of America, Morgan Stanley and Goldman Sachs slipped premarket, after sliding Thursday.

-- So did Citigroup, whose specialty in moving money between continents leaves it particularly exposed to a shock to global trade. Citi's 12% slump on Thursday was its biggest since 2020.

A trade war could mark a reversal for banks that scored bumper profits in recent years, when rising interest rates boosted their earnings from lending money to consumers and companies.

Now, government bond yields are tumbling in expectation tariffs will spark an economic slowdown that could prompt the Federal Reserve to slash borrowing costs. All else being equal, that will drag down banks' earnings from their core lending business.

Other factors are adding to the pressure. A recession would likely reduce demand for loans from banks, and also lead to more defaults.

Given the acute uncertainty about the stock market, funding costs and the economy, many business chiefs are likely to think twice before doing deals, limiting investment banks' fees for advising on IPOs and acquisitions.

"In 25 years I haven't seen many periods when the crystal ball was murkier than it is now," said Tom Swerling, global co-head of equity capital markets at Barclays.

The amount banks spend to borrow from each other in wholesale funding markets, may go up given the broader market volatility, analysts added.

Perhaps worst-placed in a trade war are banks that specialize in financing trade and enabling cross-border flows of capital. U.K.-listed Standard Chartered, whose strategy is to act as a bridge between Asian, Middle Eastern and African markets, suffered a 13% fall Thursday and lost more ground Friday.

There are some silver linings for banks. Trading floors typically rock when markets are volatile, as in the early months of the pandemic.

And if world trade becomes more convoluted it could ultimately create money-making opportunities for banks that facilitate it, said Benjamin Toms, an analyst at RBC Capital Markets.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

April 04, 2025 05:28 ET (09:28 GMT)

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