Investment Banking Revival: A Long-Awaited Turnaround

After a period of declining deal flow beginning in early 2022, investment banking divisions at the major U.S. financial institutions are now experiencing a vigorous bounce back. According to Dealogic, global M&A volumes for Q3 2025 are up more than 30% year-over-year, propelled by easing market volatility and growing CEO confidence. U.S. IPO activity has also reignited, with proceeds nearly doubling against the same quarter in 2024 as companies seize favorable market conditions to go public.

Heightened interest from private equity, strategic acquirers, and renewed appetite from institutional investors have all contributed to this recovery. Notable transactions, such as Alliance Laundry’s $826 million IPO and a string of megadeals in technology, healthcare, and energy, have provided significant revenue streams for dealmaking arms at banks like Goldman Sachs and Morgan Stanley. Advisory and underwriting fees, which contracted sharply during 2022-2023, are now posting robust growth.

Drivers of the Deal Rebound

The rebound in deal activity comes amid several converging factors:

• Improved Market Stability: The Federal Reserve’s signaling of a pause in interest rate hikes has reduced market volatility, giving companies and investors greater clarity for strategic planning and capital raising.
• Corporate Confidence: Pent-up demand among CEOs and boards, many of whom had delayed strategic moves due to macroeconomic uncertainty, is now being unleashed as economic indicators point toward moderate growth and receding inflationary pressures.
• High Cash Balances: Corporate treasuries and private equity firms continue to sit on record amounts of capital, increasing competition for attractive assets and premium deal multiples in certain sectors.
• Sector-Specific Tailwinds: Technology, healthcare, and energy — particularly renewables — are dominating the M&A landscape. The ongoing global push for digital transformation and energy transition is fueling strategic consolidations.

Bank Performance: What to Watch in Q3 Earnings

Analysts expect each of the big six banks to show quarter-over-quarter improvement in their investment banking divisions. According to FactSet, consensus forecasts indicate a 25-40% surge in revenue from advisory and underwriting compared to the same period last year. Notably:

• Goldman Sachs and Morgan Stanley are expected to lead the rebound, with their franchise strengths in capital markets and advisory services positioning them for outsized fee income. The successful execution of several IPOs and multibillion-dollar deals, such as recent transactions in AI, fintech, and pharmaceuticals, is set to boost their top lines.
• JPMorgan Chase and Bank of America, with their diversified business models, are also forecasted to benefit from strong deal flow, although higher loan loss provisions and flat net interest income may temper overall profit growth.
• Citigroup and Wells Fargo are looking to capitalize on cross-border M&A and upticks in corporate lending, though legacy issues and regulatory scrutiny remain overhangs for both institutions.

Across the sector, investment banking will be the primary earnings catalyst, as trading revenues are expected to normalize after several quarters of extreme volatility that benefitted fixed income desks. Consumer banking, by contrast, faces a more muted outlook in the wake of slowing loan demand and tight credit conditions.

Broader Economic and Market Context

This profit resurgence comes at a pivotal time for the U.S. financial sector. Although the macroeconomic environment remains challenging — with inflation moderating but not yet at target levels and ongoing geopolitical risks — the capital markets have staged a surprising rally. The S&P 500 and Nasdaq have both achieved record highs in recent months, reflecting renewed optimism, especially in technology and growth-focused stocks.

According to the Securities Industry and Financial Markets Association (SIFMA), global dealmaking volumes reached over $3 trillion in the first nine months of 2025, a milestone that places this year on pace to rival pre-pandemic records.

Headwinds and Risks Ahead

Despite the upbeat near-term projections, significant risks could yet cloud the outlook for U.S. banks:

• Geopolitical Uncertainty: Instability in Europe, Asia-Pacific trade tensions, and ongoing Middle East conflicts could dent confidence and pause deal activity.
• Regulatory Pressure: Banks face heightened scrutiny on risk management after the regional banking crisis of 2023. Higher capital requirements and tougher Basel III endgame rules could crimp returns.
• Economic Slowdown: If growth slows more sharply than anticipated or unemployment rises, credit losses could mount, potentially offsetting investment banking gains.

Outlook for Remainder of 2025

Looking ahead, industry experts remain cautiously optimistic. With the Federal Reserve expected to maintain its current rate stance and economic signals pointing to resilience in business investment, the foundations appear strong for continued healthy deal activity throughout the remainder of 2025.

“It’s a classic case of pent-up demand and normalization converging,” says Ken Shaw of State Street, pointing to both institutional and retail participation as factors in the recovery. “What we’re seeing now is the return of strategic M&A and capital formation that banks have been eagerly waiting for.”

As earnings season kicks off, all eyes turn to Wall Street’s heavyweights for clear signs that the long-awaited rebound in investment banking is not just a short-term blip, but a durable trend that could reshape the profit landscape for years to come.