Banks Ramp Up AI, Advisory & Capital Markets Push Ahead of Strong 2026 IPOs & M&A

Interviewing into the forward 2026 horizon, global investment banks are actively engineering a strategic pivot that aims to capture accelerating deal flow while managing mounting cost pressures. Key firms such as JPMorgan Chase, Goldman Sachs, and Morgan Stanley are central to this movement, each navigating a complex web of opportunity and risk rooted in macroeconomic trends, regulation, technology, and client demand.

1. Drivers of Revival and Competitiveness
M&A and IPO pipelines have resumed momentum after a lull in prior years. According to Dealogic, global merger and acquisition activity jumped 41% year over year to about $4.81 trillion by the end of 2025, with 70 “megadeals” exceeding $10 billion. Similarly, equity underwriting and advisory services are seeing renewed demand, especially in sectors like technology, healthcare, and AI infrastructure. AI-related investments—notably agentic AI and data‐center infrastructure—are both high-opportunity and differentiator plays.

2. Cost Inflation, Investment, and Margin Risk
While revenue prospects are rising, so are expenses. JP Morgan, for example, expects $105 billion in expenses for 2026, up nearly 10% from the previous year, driven by inflation, branch expansion, marketing, performance‐based pay, and AI investments. Wells Fargo signaling further job cuts in 2026 underscores broader efforts to compress cost bases while scaling tech investments. The strategic challenge is balancing rising fixed costs against volatile revenue in trading or underwriting windows.

3. Structural and Regulatory Risks
Regulatory dynamics remain fluid. Activist investor pressure has grown among regional banks to adapt or merge, testing governance and long‐term strategic planning. Meanwhile, banks in Europe face evolving rules around capital, reserve requirements, and ESG or technology oversight, which could affect margins or require additional spending. Geopolitical fragmentation—part of the “fragmentation” theme from private banking outlooks—is adding complexity to cross-border transactions and supply‐chain financing.

4. Implications for Strategy and Positioning
Banks that are likely to perform best in 2026 will be those who:

• Early scale AI to deliver operational leverage, especially in client-facing advisory workflows and back‐office automation.
• Focus on high‐return advisory and underwriting mandates, where fee margins are highest, and possibly de‐emphasize commoditized segments or capital‐intensive balance sheet risk.
• Proactively manage cost trajectory—including inflation, labor, occupancy—and use aggressive resource reallocation or benchmarks for return on investment.
• Maintain agility amid regulatory shifts and activist pressure, especially regional or boutique firms who could be pressured to consolidate or improve governance quickly.