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U.S. banks gain from Washington policy changes but trade worries loom

Reuters  |  NEW YORK 

By and David Henry

NEW YORK (Reuters) - Second-quarter earnings reports from three of the biggest U.S. on Friday showed the sector is benefiting from policy changes in Washington that have lowered their taxes, boosted interest rates and allowed them to buy back more stock.

Investors were skeptical, worried that underlying businesses were not as strong as they could be and that tough talk from international leaders about trade tariffs and hardened borders could hurt their bottom lines.

"With the tariffs, there's this element of uncertainty and people aren't anxious to take loans at a time when there's uncertainty," said JJ Kinahan, at in

Shares of stocks were down 0.7 percent at 1:30 p.m. ET (1730 GMT), as measured by the S&P 500 index after & Co, Inc and & Co reported second-quarter results.

was the only one of the three lenders whose profit did not meet Wall Street expectations. The was hurt by costs relating to past misconduct and a decline in mortgage lending. Although beat profit estimates, its revenues fell short of expectations.

Citigroup's loan growth said little about the U.S. economy because it came largely from corporations looking for international trade loans and working capital financing as well as from private clients in Asia, told reporters.

JPMorgan, the largest U.S. by assets, had the strongest results, with profit jumping 18 percent year-over-year on strong trading revenue and loan growth. But warned that clients are worried about a global trade war after U.S. ramped up his protectionist rhetoric in recent weeks.

Trade disputes, particularly with China, are creating uncertainty, Dimon said on a conference call with reporters.

"It's affecting psyche more than it is economics," he said. "There are unpredictable outcomes when you start skirmishes like this with multiple countries."

Even so, consumers and businesses remain confident enough to transact and borrow, Dimon later told analysts.

"If you're looking for potholes out there, there are not a lot of things," he said. "Growth is accelerating."

acknowledged trade concerns but said, so far, they had not resulted in significant changes to the way clients transact.

"It's the rhetoric we're tracking," he told analysts. "I think the markets have fears of what the rhetoric leads to but, at this point, we're not seeing it come through in the numbers."

Both and Citigroup benefited from strong equities trading during the quarter - JP Morgan's equity trading revenue increased by 24 percent while Citi's equity trading revenue was up 19 percent. That bodes well for Sachs and Morgan Stanley, each of which have substantial equities trading operations and are due to report quarterly earnings next week.

Despite a favorable trading environment, shares in U.S. have underperformed the broader market this year because investors think the record profits are the result of one-time tax cuts and share buybacks rather than underlying strength in their businesses, according to analysts.

Investors want to see more growth in revenue and in pretax profit, according to of Portales Partners, who said on Thursday the strong growth in earnings across the industry "is coming from financial engineering: a onetime tax cut and share buybacks."

(Additional reporting by in New York and Sweta Singh and Aparajita Saxena in Bengaluru; editing by and Jonathan Oatis)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Fri, July 13 2018. 23:23 IST