A once-reliable engine of Wall Street profit is now sputtering through its worst stretch in more than ten years. Investment banking, the high-margin business of advising on mergers and acquisitions and raising capital through debt and equity issuance, is poised to log its 14th consecutive quarter of underperformance. For the five major U.S. investment banks—JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley—this means another quarter where investment banking revenues contribute less than 25% of total capital-markets earnings, the longest such streak since at least 2014.
The figures are sobering. In the second quarter of 2025, investment banking revenue is expected to fall nearly 10% year-over-year, landing around $7.5 billion. At the same time, trading revenue is surging to approximately $31 billion, marking a 10% gain and dwarfing investment banking by a factor of more than three. This imbalance underscores a growing reliance on market volatility and trading desks to prop up earnings, while dealmakers continue to languish in a drought that began in earnest after the collapse of the post-COVID speculative boom in 2021.
The reasons for this prolonged slump are numerous and overlapping. Persistently high interest rates have made financing more expensive, discouraging large-scale acquisitions and new equity offerings. Heightened geopolitical instability—from the continued war in Ukraine to Middle East flare-ups—has chilled cross-border dealmaking. Meanwhile, policy uncertainty, including tariff-driven trade disputes and the looming U.S. presidential election, has injected additional caution into boardrooms. Corporate executives are increasingly reluctant to pursue transformative deals amid a backdrop of economic and political unpredictability.
IPO activity has remained weak, with only a few notable exceptions, and debt issuance has been muted. Hopes that 2025 would mark a turning point in capital markets have largely gone unmet. Analysts had predicted a recovery in M&A and equity issuance, but the rebound has failed to materialize in the face of ongoing macro headwinds. Bloomberg data suggests that both equity and debt capital markets remain in a holding pattern, undermining revenue pipelines for advisory units.
Optimism isn’t entirely absent. Some analysts believe that equity issuance could rebound late in the year if market conditions stabilize. Oppenheimer’s Chris Kotowski noted that while most of the year is already “baked in,” a robust fourth quarter in equity offerings might help salvage the investment banking year. But for mergers and acquisitions, expectations are far more restrained. Even though some recent green shoots have emerged, the overall pace remains sluggish and unlikely to change meaningfully without a significant shift in economic sentiment.
This structural decline in investment banking’s contribution poses long-term challenges. Trading revenue, while lucrative in times of volatility, is more capital-intensive and cyclical than the advisory and underwriting business, which typically delivers higher margins. Investors tend to favor a balanced mix of earnings sources, and the current skew toward trading makes banks more vulnerable to any downturn in market activity. If volatility moderates—as it eventually will—banks may find themselves squeezed between falling trading profits and persistently weak deal flow.
Some banks are already responding with belt-tightening. Junior investment bankers have been laid off at multiple firms, and hiring freezes have taken hold as leaders brace for a prolonged lull. There’s a growing realization that the post-pandemic boom in dealmaking may have been an aberration rather than a sustainable trend. With risk appetite dampened and regulatory scrutiny on the rise, banks are recalibrating expectations for their investment banking units.
Unless macro conditions shift dramatically—perhaps through a resolution in global conflicts, a clear U.S. policy direction after the election, or a resurgence of corporate confidence—Wall Street’s dealmakers may have to accept a more subdued role for the foreseeable future. The hope remains that a strong close to 2025 could restore some momentum. Until then, trading desks are carrying the load, while investment banking continues to tread water through its most prolonged downturn in over a decade.