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This Week in Earnings – Q2'25

The Sector Beat: U.S. Banks

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Our thought leadership this week addresses:​​
24 min. read

Earnings season is off to the races and our channel checks indicate a resilient economy across many end markets despite tariffs and continued global uncertainty. Indeed, we are seeing green shoots and strength. Still, consumer-related demand is mixed with the lower-income cohort more pressured, and company cost-cutting measures prevalent. Are we emerging from the woods or is it the calm before the storm? Third quarter will hopefully serve as a tie breaker.

In today’s thought leadership, we cover:

Key Events

Retail Sales

  • U.S. Retail Sales rose 0.6% in June, beating expectations for a 0.1% increase. The rebound follows an unrevised 0.9% drop in May. Retail sales for the so-called control group — which feeds into GDP and excludes automobiles, gasoline, building materials, and food services — rose 0.5% last month, up from 0.4% in May. (Source: Commerce Department, Reuters)

Inflation

  • The U.S. June Consumer Price Index rose 0.3% on the month, in line with expectations, while the annual rate of inflation increased to 2.7% from May’s 2.4% reading. Core CPI rose 0.2% MoM, edging up from 0.1% in the prior month, while the annual rate ticked up to 2.9% after holding steady at 2.8% in the prior three months. (Source: U.S. Bureau of Labor Statistics)
  • The U.S. Producer Price Index was unchanged in June, coming in below consensus estimates for a 0.2% monthly increase. The PPI was up 2.3% on an annual basis, also cooler than the 2.5% consensus and down from 2.7% in May. Core PPI (excluding food and energy) was flat MoM, compared with expectations for a 0.2% increase, while the annual rate of wholesale inflation cooled to 2.6% from May’s 3.2% reading. (Source: U.S. Bureau of Labor Statistics)
  • Canada’s Consumer Price Index rose 0.1% on a monthly basis in June, matching consensus estimates and down from May’s 0.6% increase. On an annual basis, the CPI rose 1.9%, in line with consensus estimates and up from 1.7% in May. CPI excluding energy rose 2.7% YoY. Among the Bank of Canada’s preferred core measures, CPI-median ticked up to 3.1% from 3.0%, while CPI-trim held steady at 3.0%. (Source: Statistics Canada)
  • Germany’s Producer Price Index rose 0.1% in June, compared with expectations for a flat monthly reading. On an annual basis, producer prices declined 1.3%, driven largely by lower energy prices. Excluding energy, the PPI was higher by 1.3% YoY. (Source: Federal Statistical Office of Germany)

Labor Market

  • U.S. initial jobless claims for the week ended July 12 totaled 221,000, down from 228,000 a week earlier and lower than expectations of 235,000. Initial claims have now declined for a fifth straight week. Continuing claims for people receiving benefits were little changed at 1.956M. The prior week’s continuing claims were revised down to 1.954M from the 1.965M initially reported. (Source: Labor Department)

Recap

Inside The Buy-Side® Q2’25 Earnings Primer®

As noted last week, following last quarter’s survey which found the sharpest QoQ pullback in bullishness in a decade driven by acute tariff concerns, policy trepidation, and deteriorating growth forecasts, the Voice of Investor® captured in this quarter’s survey reveals a shift toward cautious optimism, but with investors still wary of tariff impacts and consumer concerns.

Key takeaways from our survey include:

  • Investor Sentiment Rebounds Following Last Quarter’s Sharp Pullback, though Not Fully Back to Bullish Levels Seen Last Year Post-U.S. Election; Economy Seen as Holding Up (For Now) and Executives Credited with Effectively Managing Expectations
  • Recession Fears Fade After Spiking Last Quarter, Though Nearly Half Continue to Expect 2025 U.S. GDP Growth to Slow Relative to 2024, as Geopolitics and Tariffs Remain Concerns; Notably, Investors Are Evenly Split on Preference for Margins vs. Growth
  • Debt Paydown Remains the Top Preferred Use of Cash, While Buyback Interest Hits an All-time High and Reinvestment Ebbs as a #1 or #2 Use; Mid-caps Remain in Favor, and Investors Pile Back into Technology While Shunning Consumer Sectors
Corbin Advisors Inside The Buy-Side® Earnings Primer® Q2'25 Cover

The Sector Beat: U.S. Banks

Big Banks kicked off Q2 earnings season on a positive note, with most delivering top- and bottom-line beats, bolstered by trading revenue amid heightened market volatility, alongside a rebound in deal activity. In contrast with last quarter’s notably cautious tone in the aftermath of April’s “Liberation Day” tariff shock, executives now strike a chord of cautious optimism, echoing findings from our recently published Q2’25 Inside The Buy-Side® Earnings Primer®.

Bank leaders broadly describe a U.S. economy that has proven more “resilient” than anticipated, with companies gaining comfort in a “narrower range of outcomes on global trade”. Still, bank execs remain vigilant heading into the second half, continuing to flag persistent uncertainty and risks tied to tariffs and geopolitical turmoil. Citigroup, for example, noted pauses in capex and hiring among clients, while Bank of America pointed to expectations for a rise in unemployment in the coming months.

Regarding the deal environment, executives report renewed momentum after a sluggish start to the quarter, with corporate clients showing greater willingness to transact and growing desensitization to ongoing uncertainty. In contrast, overall loan growth remains more subdued. Further, some pockets of Q2 strength were partly attributed to trade-related considerations, tariff-driven pull-forward, and increased revolver utilization as clients adapt to a shifting landscape.

Big banks continue to downplay concerns around consumer health, pointing to solid spending and credit trends, albeit with strength skewed more toward high-income cohorts. This potentially comes at a crossroad with commentary from off-cycle companies covered in our “Commencing the Quarter”, where we highlighted companies flagging an acceleration in the trend of higher-income consumers shifting toward value-seeking behavior.

Finally, amid an ongoing focus on managing costs and headcount, progress with AI and automation initiatives featured heavily on this quarter’s calls. Indeed, one analyst quipped during JPMorgan’s Q&A, “This almost sounds like a fintech and AI call.” To that end, several banks highlight broader adoption across their employee base, touting early signs of efficiency and productivity gains.

Key Themes

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Macroeconomic Outlook

Executives See Improved Conditions and Client Optimism, yet Remain Cautious on Trade, Geopolitics, and Capex/Hiring Pauses

  • JPMorgan ($796.3B): “The U.S. economy remained resilient in the quarter. The finalization of tax reform and potential deregulation are positive for the economic outlook; however, significant risks persist, including from tariffs and trade uncertainty, worsening geopolitical conditions, high fiscal deficits and elevated asset prices. As always, we hope for the best but prepare the firm for a wide range of scenarios. In terms of what we’ve said about our investment banking pipeline, we have been consistently quite cautious. At a certain point, when you have the type of performance that you have this quarter, it starts to make your cautiousness seem less credible. So, we wanted to take a hard look at ourselves and say, what do we really think. Yes, the sentiment is better, but that can change overnight, and there are a lot of risks.”
  • Bank of America ($347.6B): “We saw improving market conditions during the quarter, and that leads our research team to continue to predict no recession and a modestly growing economy. There remains a good amount of uncertainty from the impacts related to announced tariffs and the potential for continued uncertainty. We also see our clients continue to seek clarity with the changes in trade and tariffs, and now with the Tax Bill passing we can see them start to understand the future and expect them to behave accordingly.”
  • Wells Fargo ($256.6B): “I’ve had the opportunity to meet with many of our commercial banking clients, and many have conveyed optimism that the Administration is working to level the trade playing field. Many have found ways to avoid passing the 10% tariffs on to their customers. At the same time, they are preparing for the downside and are not growing inventories or hiring aggressively. We are hopeful that the results of the current negotiations will make our clients more competitive and help drive stronger economic growth in the U.S., but there is uncertainty, and we should recognize there is risk to the downside as the markets seem to have priced in successful outcomes.”
  • Morgan Stanley ($227.2B): “Q2 unfolded with two distinct halves. The first half began with uncertainty and market volatility associated with the U.S. trade policy, and the second half ended with increasing engagement and a steady rebound in capital markets. Looking ahead, we remain constructive on the market environment. Amidst continuing economic and geopolitical uncertainty, we are intensely focused on continuing to deliver outstanding durable results.”
  • Goldman Sachs ($215.6B): “Despite the resilient global economy and market backdrop, much remains uncertain. Geopolitical concerns have intensified in many regions, most notably in the Middle East. A number of trade agreements have yet to materialize, and the ultimate impact on growth from higher tariffs is yet unknown. At the moment, there’s a sense that things are moving forward constructively, but developments rarely unfold in a straight line.”
  • Citigroup ($169.4B): “[The environment] has proven to be more resilient than most of us anticipated, but we aren’t dropping our guard as we begin the second half. We expect to see goods prices start ticking up over the summer as tariffs take effect. And we have seen pauses in Capex and hiring amongst our client base. All of that said, the strength of the U.S. economy has certainly been exceeding expectations. As I’ve been speaking to CEOs, I have yet again been impressed by the adaptability of our private sector.”
  • First Horizon ($10.8B): “The economy continues to be relatively stable. We’re seeing improving customer confidence, but uncertainty remains around tariffs, interest rates, and the economic outlook. Sitting here today, we believe that the fundamentals in the economy, especially in our southern footprint, will remain good for the back half of 2025 and into 2026.”

Overall Resilience Persists with Solid Credit and Spending, though Strength Skews toward Affluent Cohorts as Lower-income Segments Remain Pressured

  • JPMorgan ($796.3B): “We continue to struggle to see signs of weakness. The consumer, basically, seems to be fine. Not surprisingly, you see a little bit more stress in the lower income bands than you’re seeing the higher income bands. But that’s always true. That’s pretty much definitionally true and nothing there is out of line with our expectations. Our delinquency rates are also in line with expectations. Fundamentally, consumer credit is primarily about labor markets, and in a world with a 4.1% unemployment rate, it’s going to be hard to see a lot of weakness.”
  • Bank of America ($347.6B):“We continue to see a solid consumer, with improving credit quality from already strong statistics and plenty of household net worth growth, and account balances staying strong, above where they were pre-pandemic.”
  • Wells Fargo ($256.6B): “As we look ahead, what we see regarding the health of our clients and customers has not changed. Consumers and businesses remain strong as unemployment remains low and inflation remains in check. Credit card spending growth softened very slightly in Q2, but is still up YoY and remains strong overall, and debit card spending growth has remained strong and consistent with what we saw in prior quarters. Consumer delinquencies continued to improve from a year ago.”
  • Citigroup ($169.4B): “We are seeing continued increase in spend, but it tends to be towards the more affluent customers, and we skew towards the higher FICO score. It’s in essentials. There is some increase in dining and entertainment, less in travel. And so, [we see] a discerning consumer, in good health given the uncertainty in the current environment.”

Dealmaking Momentum Returns as Clients Move Past Tariff Shock; Pipelines and CEO Confidence Strengthen as Uncertainty Narrows 

  • JPMorgan ($796.3B): ”After the initial shock of tariff policy changes, everyone kind of went on hold. But as we’ve noted in our comments a few times today, at a certain moment, you just have to move on, and it does feel like some of that is happening because you can’t delay forever.”
  • Goldman Sachs ($215.6B): “The dealmaking environment has been remarkably resilient. While activity was slower in the first half of the quarter, announced M&A volumes year-to-date are 30% higher YoY and 15% greater than the comparable 5-year average. A narrowed range of outcomes on trade and the overall economy has helped CEO confidence and increased their willingness to transact. We’ve seen a pickup in momentum with both strategic and sponsored clients. Capital markets activity has also accelerated. Though uncertainty could persist in some pockets, particularly in industries highly sensitive to trade policy, we are optimistic on the overall investment banking outlook. Our client engagement continues to be elevated, and we’re seeing it in our backlog, which rose for a fifth consecutive quarter.”
  • Morgan Stanley ($227.2B):“Despite a slowdown in strategic and capital markets activity for half of the quarter, a resumption of Investment Banking activity in June highlighted that clients turn to Morgan Stanley as market windows reopen and serve as momentum heading into the second half of 2025. Convertibles, follow-ons, and IPO issuance all accelerated towards the end of the quarter, as global issuers and investors gained confidence amid a market rebound. The M&A backlog continues to build across regions with a thematic focus on growth, supported by healthcare and technology. As we look ahead, we are entering Q3 with momentum. Investment Banking pipelines are healthy, dialogues are active, and markets have proven resilient. Boardrooms appear more accepting of ongoing uncertainty broadly. “
  • Citigroup ($169.4B): “In Banking, we’ve talked about continued share growth. We’re very pleased with the M&A front. The pipeline is excellent.”

Broad-based, Albeit Modest Growth; Pockets of Strength and Tariff-driven Activity as Clients Adapt to Uncertainty; Cautious Optimism Builds for H2

  • JPMorgan ($796.3B): “On loan growth, it’s useful to break this down between what I would think of as relationship lending that kind of drives the whole franchise – we sometimes look at that as an indicator of the health of the corporate sector, and people like to look at it as a read for smaller banks – that part of the franchise remains fine, but sort of muted as customers have access to capital markets and revolver utilization is sort of flattish. But there was quite a bit of deal activity in the second half of the quarter, a lot of which is well known and public, and some of that is on our balance sheet and we’re very happy to have it there.”
  • Bank of America ($347.6B): “Every business segment recorded higher average loans on both a YoY basis and a linked-quarter basis. Small business and business banking both grew. In middle market lending, we saw a nice increase in revolver utilization during the quarter as clients navigated the current environment. And in GCIB (Global Corporate and Investment Banking), we had a little more demand from our larger corporate clients. We feel good about the growth and we’re seeing in every consumer category. We can probably push a little harder in some areas there, but you’ve got to be careful of the volatility of consumer credit when we still have unemployment predicted to go up in most of the surveys we look at.”
  • Wells Fargo ($256.6B): “On the commercial side, we do expect to see some modest growth as we go into the rest of the year. But overall, it’s still relatively modest. As you get to the end of the year, hopefully we’ll start to see a little bit more activity more broadly.”
  • Citigroup ($169.4B): “We are seeing continued loan growth across the portfolio. We’ve seen it in Services, in trade loans, and those are on the heels of our clients looking at different trading corridors and wanting to bring on additional suppliers in preparation for what could be on the other side of trade policy.”
  • PNC Financial ($76.0B): “Loan growth was strong in Q2, and it really was the combination of an uptick in utilization, in part due to obviously some tariff-related considerations. But importantly for us, on top of that was also new production in large part from our growth markets, which is simply the fruition of years of working toward that.”
  • M&T Bank ($31.7B): “The big amount of loans that we had in indirect RV and auto was basically people buying before higher car prices or RV prices came onboard. That was a pull-forward. But talking to our leader in that place, he’s optimistic that RV will continue. Auto as well.”
  • First Horizon ($10.8B): “Borrowers have been very resilient. They’ve processed through some of the early impacts of tariffs and how that’s going to affect business and are leaning in more and more to opportunities. We see an increase in optimism, and we’re likely to see improved activity over the back half of this year as some of these tariff questions get further settled over the next 30, 60, 90 days.”
  • Webster Financial ($9.8B): “One of the things that gives us confidence going into the second half of the year is that the pipeline of activity in both commercial C&I and commercial real estate has gotten better over the course of May and June. Today, we sit in a place where we have greater visibility of what we’re going to be seeing from a loan growth perspective for the second half of the year.”

AI and Automation Move from Pilot to Practice, Delivering Early Efficiency Gains Amid Ongoing Focus on Costs and Headcount 

  • Bank of America ($347.6B): “We continue to drive technology innovation both on the product side that we offer our customers but also on the operational excellence side. We’re continuing to see benefits of our long-term investment in technology capabilities, digitization, machine learning. And now we’re starting to see the beginning of the AI practices that we develop pay off, and we’re looking forward to much more. We have 17,000 programmers using AI coding technology today, saving 10% to 15% in code generation costs, and we expect that to continue to rise.”
  • Wells Fargo ($256.6B): “We continue to feel like there are significant opportunities to drive efficiencies…both traditionally and through technology including AI. It’s very early to see any impact of any significance from AI, but we’ve got capabilities and pilots in our branch system, in our ops system, in our call centers, really across anywhere where you’ve got anything manual and a lot of people, and those things are starting to mature a little bit. Very early, but you’re starting to see some of the benefit in terms of efficiency.”
  • Morgan Stanley ($227.2B): “Efficiency gains remain a product of continued prioritization of our controllable spend and savings from prior space exits, self-funding investments, and driving increased productivity by leveraging technology to support the firm’s strategy.”
  • Goldman Sachs ($215.6B): “[Regarding AI], this is a big opportunity. It’s a big opportunity to automate processes, create efficiency and productivity. It’s not just to take cost out, although there will be operating efficiency and costs that can come out. It’s also to create flexibility for us to make investments in other things that can drive more growth in our client businesses. Last month, we rolled out our natural language GS AI assistant to the entire firm, the first generative AI-powered tool to reach the scale, allowing for safe, secure and responsible access to firm approved external large language models. We recently began collaborating with Cognition Labs and are piloting the usage of Devin, an autonomous generative AI agent designed to transform the way we build, maintain and develop software with risk oversight and supervision of our engineers. Operating efficiently is one of our key strategic objectives, and these efforts will allow us to continue to enhance the client experience, while improving productivity.”
  • Citigroup ($169.4B): “We continue to focus on streamlining processes and platforms and driving automation to reduce manual touchpoints. We’re also increasingly deploying AI tools to support these efforts in areas such as data quality, and we remain on track with our data plan. As all of this work progresses, we are confident that our transformation expenses will start to decrease next year.”
  • Bank of New York Mellon ($68.1B): “It’s an exciting moment for AI at BNY. Nearly all of our employees are using our multi-agentic enterprise AI platform, Eliza, and we’ve started to introduce digital employees into our workforce. It’s early days, but we are beginning to see the benefit of some of these agents and digital employees, and we expect that to accelerate in the quarters and years ahead.”

In Closing

Overall U.S. bank commentary reflects a rebound in sentiment from the notable downshift in tone exhibited in April, when Trump tariff announcements rattled markets and pushed corporate clients to prioritize near-term mitigation efforts. Still, even as financial markets and renewed deal activity suggest a willingness (or innate desire?) to look past tariff uncertainty, tail risks from trade policy and geopolitics remain very much in play.

While management teams provided valuable transparency on tariff exposures and offsets during Q1 earnings, investors may have grown complacent regarding the possible impacts. Current market sentiment seems to underappreciate the potential for knock-on effects, such as softer demand and increased corporate cost-cutting, to emerge more visibly in the second half.

Against this backdrop, it remains essential to proactively manage investor expectations through clear communication, grounded in the realities you are seeing on the ground.

Up next week: Q2’25 Industrial Sentiment Survey® and the Industrial Sector Beat.  

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