By Matt Scuffham and David Henry
NEW YORK (Reuters) – Second-quarter earnings reports from three of the biggest U.S. banks 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, chief market strategist at TD Ameritrade in Chicago.
Shares of large bank stocks were down 0.8 percent at midday, as measured by the Banks index <.SBXBK> after JPMorgan Chase & Co (N:), Citigroup Inc (N:) and Wells Fargo & Co (N:) reported second-quarter results.
Wells Fargo was the only one of the three lenders whose profit did not meet Wall Street expectations. The scandal-plagued bank was hurt by costs relating to past misconduct and a decline in mortgage lending. Although Citigroup 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 banking clients in Asia, Chief Financial Officer John Gerspach told reporters.
JPMorgan, the largest U.S. bank by assets, had the strongest results, with profit jumping 18 percent year over year on strong trading revenue and loan growth. But Chief Executive Officer Jamie Dimon warned that clients are worried about a global trade war after U.S. President Donald Trump 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 pot holes out there, there are not a lot of things,” he said. “Growth is accelerating.”
Shares in U.S. banks 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 Charles Peabody of Portales Partners who said on Thursday the strong growth in earnings across the industry “is coming from financial engineering: a one-time tax cut and share buybacks.”
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