Heightened Bank Risk: U.S. Bank Shares Plummet
Author : Brian Weakliam, Founder & CEO
Heightened Bank Risk: U.S. Bank Shares Plummet
The U.S. banking sector is experiencing significant volatility, with major bank stocks recording substantial declines. This downturn is largely attributed to escalating trade tensions following the recent implementation of tariffs by the U.S. administration.
These developments have heightened fears of a potential recession, prompting concerns about the broader economic impact on businesses. It has also heightened risks in the banking sector.
It is notable that prior to the banking crisis in 2008 there were successive falls in bank share prices. Whereas the crash in 2008 was precipitated by a housing bubble, in early 2025 many experienced commentators were talking about a stock market bubble. Other concerns include a fast-growing unregulated shadow banking sector.
Extent of the Decline
At close of business on Friday April 4th, 2025, the "Big Six" U.S. banks had experienced notable share price reductions since their year high on February 18, 2025:
JPMorgan Chase & Co. (JPM): Down 35%, closing at $206.28.
Bank of America Corp. (BAC): Decreased by 33%, ending at $33.39.
Citigroup Inc. (C): Fell 51%, closing at $56.13.
Wells Fargo & Co. (WFC): Dropped 35%, ending at $60.98.
Goldman Sachs Group, Inc. (GS): Declined by 45%, closing at $459.81.
Morgan Stanley (MS): Down 47%, ending at $96.83.
These figures underscore the market's reaction to the escalating trade disputes and the anticipated economic ramifications.
A surprising aspect of these share price movements is that they have impacted the big banks – the banks that are supposed to be ‘too big to fail’. This would suggest that the share price declines relate to the earnings hit from the collateral damage from tariffs rather than credit risk in their balance sheets.
It is too early to ascertain if there has been a significant flight of deposits from any banks but it would be wise for CFO’s and Treasurers to be on high alert if there are any further deteriorations in bank share prices.
This week the major banks will start announcing their Q1 financial results. It will be the commentary that we will await with interest.
Short Term Implications for Businesses
Tightened Credit Conditions: Banks facing reduced market valuations may adopt more conservative lending practices, making it challenging for businesses to secure new loans or credit lines.
Increased Borrowing Costs: To mitigate risks, banks might raise interest rates on lending and other products leading to higher borrowing costs for companies.
Reduced Investment Banking Activity: A downturn in bank shares can dampen merger and acquisition activities, potentially stalling strategic business expansions and collaborations.
Reduced Interest Rates on Customer Funds: Banks will likely reduce the interest rates they will pay for customers funds to compensate for losses elsewhere in their portfolios
Look our for the Banks earnings announcements starting this week with JP Morgan on Friday April 11th.
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