NEW YORK: Clients of giant US banks are increasingly nervous about growing trade tensions, but are not yet significantly curtailing business activity due to the uncertainty, banks said Friday after reporting mixed earnings.

JPMorgan Chase chief executive Jamie Dimon cautioned that “There are unpredictable outcomes when you start skirmishes like this with multiple countries.” “It’s a worry,” he told reporters in a conference call, but “I don’t know if I’d use the word ‘major’ yet.” Citigroup chief financial officer John Gerspach agreed with his counterparts that the concerns are not yet driving business decisions.

“When you get into this kind of rhetoric, it does impact sentiment,” he said. “It’s going to slow down decision-making in some cases, but that hasn’t translated yet into anything we’ve seen.” The comments came as the two major US banks reported earnings that easily topped analyst expectations, in contrast to slumping Wells Fargo which badly underperformed forecasts.

The banks are among the first major companies to report results in what is expected to be a strong second-quarter earnings season thanks to US tax cuts and a humming American economy.

However, a series of trade battles launched by US President Donald Trump against key trading partners, including China and the European Union, have clouded the overall business outlook.

Another worry particular to bank stocks is whether the benefits from higher Federal Reserve interest rates are ebbing. Higher interest rates boost bank profits by allowing them to charge more for loans. However, as rates continue to rise, banks also must pay more to depositors.

A note from S&P Global credit analyst Brendan Browne this week warned that the gains for banks from higher interest rates “are likely to diminish, because we expect deposit rates to rise more materially over the next year.” JPMorgan, the biggest US bank by assets, reported an 18.3pc surge in net income compared to the year-ago period to $8.3bn. Revenues came in at $28.4bn, up 6.5pc.

Published in Dawn, July 14th, 2018