Tariff jitters threaten mid-cap US banks' profits, Morgan Stanley says

Uncertainty from tariff increases are pressuring expectations for mid-cap U.S. banks' loan growth and provisions, potentially weighing on future profits, Morgan Stanley analysts write in a note

Brokerage says it is bringing down its price targets on stocks in the sector by ~10%, but says the stock correction is overdone

"Even without a recession, a slower pace of economic growth and higher level of policy uncertainty is a headwind for the group" - Morgan Stanley

Brokerage raises its loan-loss provisions estimates for Q1, expecting banks to build buffers for a weaker macro environment

Also reduces estimates for FY loan growth as borrowers dial back investment spend

Banks typically thrive in stable macroeconomic environments, where predictable interest rates, steady loan demand, and low credit losses support lending, capital markets activity, and investments

Brokerage views Prosperity Bancshares PB.N, M&T Bank MTB.N and Huntington Bancshares HBAN.O most favorably due to idiosyncratic drivers and rates all three as 'overweight'

PB shares are down ~8% YTD, while MTB and HBAN have declined ~9% and ~11%, respectively