Regional banks seeking a return is rather reinforced by tariff war

(Bloomberg)-The long-awaited recovery story that US regional banks were ready to tell is derailed by the growing recession fear spurred by President Donald Trump’s trade war. The KBW regional banking index has fallen 13% since new rates on countries around the world were unveiled late Wednesday. Among the local lenders, the pain feels Western Alliance Bancorp, which has since fallen by 19%, East West Bancorp, also down 19%; and First Horizon Corp. and Zions Bancorp, who both saw their shares fall by 15%. After drawing much of their attention in 2023 and in 2024, regional banks entered this year in the hope that they could eventually shift their focus to growth. Things looked rosy, with the federal reserve lowering interest rates and the incoming presidential administration promised a pro-growing agenda and a decline in regulations that the banks believe have held them back. Instead, Trump’s trade policies now offer a completely different picture. Rather than growth in gross domestic product, initial public offers and business spending, Trump’s new rates – including threats of additional 50% import taxes on goods from China – are offended to predict that a recession is more and more likely, with Wall Street Titans once supporting Trump that Trump is a criticism of a trade policy. “Sentiment has deteriorated significantly as a result of a significant increase in uncertainty and volatility,” analysts at Raymond James & Associates wrote in a research note on Monday. “The increasing uncertainty and the reopple level of credit problems have led to a decrease in sectors.” Unlike the accident in regional bank shares in the spring of 2023, this time the declines are part of a broader sales, with Trump’s tariff plans wiping out about $ 10 trillion of stock markets worldwide. What specific businesses are hit hardest can be technical based on investors’ portfolio strategy, analysts said, as the impact of rates on specific industries is not yet clear. “There are many broad statements that people can make, such as, perhaps consumer discretion is the worst place to be, and maybe the supply chain loans are a better place to be, but I think everyone is still finding out as they go along now,” says Brian Foran, a managing director of Truilt Securities. “It generally sounds bad, but we’re not sure which industry can adjust and which is.” While the largest banks experience a similar pressure with the demand for the loans they offer, it is counteracted by the trading of income to rise with the increase in the market volatility. Regional banks are in a weaker place because lending is their bread and butter. “With these uncertain prospects, we are wary of bank shares and prefer GSIBs over regional halls, especially those with more compensation of trade and prefer banks of higher quality,” said JPMorgan Chase & Co. -Analysts Vivek Juneja, Andrew Dietrich and Sai Netem, written in a research note on Thursday, referring to global systematic important banks. The pressure on regional banks will remain, even with those who already have a diversification strategy. JPMorgan analysts downgraded our bancorp to ‘underweight’ last Thursday, saying that the firm’s attempt to expand its investment banking is facing challenges amid uncertainties around mergers and acquisitions, and that it will be affected by slower consumer spending as a result of significant payment companies. The credit card portfolio, which accounts for 8% of total loans at the end of last year, also runs the risk of relatively high losses relative to peers, the analysts wrote. Yet regional banks today have a stronger foot, with problems that emerged during the crisis. They expanded retail deposits to replace expensive wholesale financing, restructured bond portfolios to alleviate the price gaps that caused unrealized losses and set aside capital in anticipation of tighter regulations. “I didn’t feel like where it is like ‘Ah Gosh, it doesn’t feel good,'” says Terry Mcevoy, a managing director at Stephens Inc. ” It feels like it’s very different here.