Trump Bump to Trump Slump: Tariffs Quickly Weaken the Operating Environment for U.S. Banks

Following President Trump's election, businesses and investors alike anticipated a pro-growth agenda underpinned by less regulation and lower taxes. As a result, loan growth and mergers and acquisitions were expected to pick up significantly. At the time of the election, tariffs were not expected to be widespread and were primarily to be used as a negotiating tool.

Key Highlights
-- On April 2 the Trump Administration disclosed the imposition of widespread tariffs on trading partners large and small. They went into effect on April 5, causing a severe stock market reaction with the S&P 500 losing over $5 trillion, or 10.5%, over the last two trading days.
-- Tariffs and the uncertainty surrounding them have reduced investment and will likely be inflationary, and both consequences have adversely affected the operating environment.
-- If tariffs are sustained, we would expect additional weakness in earnings and asset quality that could pressure our mostly stable U.S. banks' credit ratings.

According to Michael Driscoll, Credit Rating Officer, Global Financial Institution Ratings, "While the banks in our coverage universe are generally well diversified without any outsized exposures to sectors that tariffs would most affect, a rapidly deteriorating macro environment, especially if it leads to job losses, could result in significant earnings pressure."