By Junko Fujita, Ankur Banerjee, Anton Bridge and Niket Nishant
TOKYO/LONDON (Reuters) -Bank shares tanked across the globe on Friday as fears of a recession swept through markets in the wake of U.S. President Donald Trump announcing the highest tariff walls in a century.
The S&P 500 banks index, which tracks U.S. banks, fell 6% shortly after open, extending declines after plunging on Thursday. Citigroup and Bank of America were the biggest losers in the index, dropping more than 6% each.
JPMorgan Chase, the largest U.S. lender, also lost 6%, while Goldman Sachs and Morgan Stanley fell 6.3% and 7.3% respectively.
The selloff accelerated after China’s finance ministry said on Friday it would impose additional tariffs of 34% on all U.S. goods from April 10 in retaliation for Trump’s tariffs.
Banks, as barometers of growth, are seeing their shares hammered as the U.S. breaks with the free trade order that it built up over decades. Investors are bracing for falling spending, a sharp decline in loan demand and a cratering of deal volumes.
“Bank stock valuations tell us investors are leaning toward the bear case for banks becoming a reality,” according to brokerage Raymond James, which pointed to investor expectations for a recession in 2025.
The tremors were felt across geographies. European banking stocks tumbled 8% and the financials sector was the biggest drag on the STOXX Europe 600.
In Asia, Japanese megabanks ended the week with the biggest losses since the financial crisis of 2008 in one of the markets’ most unsettling signals so far about the consequences of Trump’s trade war.
A universal 10% tariff on U.S. imports is set to take effect on April 5, followed by further levies on dozens of countries.
Mounting fears of retaliation, which Trump officials have warned could escalate the dispute further, have led some to shorten their odds on a recession coming to pass.
“Banks are in a precarious situation,” said Anthony Georgiades, founder at investment firm Innovating Capital. “They are going to have a crazy margin compression and credit risk will increase, especially in auto and consumer loans.”
Fitch Ratings’ head of North American Banks Christopher Wolfe warned that banks may have to start setting aside bigger provisions for potential loan defaults, especially if tariffs stay in place for a prolonged period.
The drop in shares is a sharp reversal for the banking sector, which a few months ago was riding high on post-election optimism. While the tariffs don’t hit banks head-on, they may prompt companies to pause M&A plans and erode consumer sentiment, which can ultimately hit investment banking fees and slow loan demand.
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