Big Profits and Mixed Outcomes: Q4 2025 U.S. Investment Banking Trends

Wall Street’s investment banking landscape in Q4 2025 reveals three key dynamics: a strong rebound in dealmaking anchored by mega-transactions, divergent performance depending on business model and geographic exposure, and rising strategic pressure to harness operating leverage amidst cost cycles and regulatory changes.

Goldman and Morgan Stanley: Capital Markets and M&A as Engines of Growth
Goldman Sachs closed the year with robust YoY growth in several high-leverage businesses. Its investment banking fees in Q4 rose 25%, lifting its dealmaking revenue to $2.57B. Equity trading was also a standout, up 25% to $4.3B in the quarter and by 16% full-year. These gains pushed GS’s full-year net revenues to $58.28B and net earnings to $17.18B, corresponding to EPS of $51.32. Morgan Stanley similarly rode strong deal flows—with investment banking net revenues up 47% in Q4—and record‐setting equities trading, driving full-year revenue and earnings to new highs. Their success reflects both favorable capital markets conditions—renewed investor risk appetite, favorable valuation windows—and strong execution in underwriting, advisory, and trading.

Citigroup: Strategy and Execution Delivering Turnaround
Citigroup’s performance is particularly noteworthy. Under Jane Fraser, the bank has pursued aggressive simplification and risk reduction, culminating in a full divestment of its Russian operations. Despite reporting a GAAP profit decline in Q4 (due to the exit from Russia), its M&A advisory fees surged 84%, its banking segment revenue rose 78%, and investment banking fees rose 35%. The rise indicates the bank has regained traction in high-fee advisory work and underwriting, challenging the perception of persistent competitor dominance by Goldman, MS, and JPMorgan.

Varied Results for the Rest: Momentum Is Fragile
Bank of America reported only 1% growth in total dealmaking fees in Q4 (to $1.7B) despite a 23% jump in equities trading revenue. Its equity underwriting fell, and debt underwriting underperformed. JPMorgan saw Q4 IB fees decline 5%, attributed to delayed deals, even while trading revenues—especially equities—soared. Wells Fargo experienced a minor drop in dealmaking revenues but still achieved its highest full-year total ever. These results suggest that while the overall pipeline is active, execution timing and product mix matter critically—particularly in equity vs. debt product lines and in managing balance-sheet exposure.

Strategic Implications

• Deal timing and pipeline management look set to define winners—banks with strong advisory and underwriting capabilities, plus timing of deal execution, will outperform.
• Trading desks—especially equities—remain strong tailwinds, but FICC and debt underwriting remain more volatile and sensitive to macro/regulatory risk.
• Banks face pressure to reinvest in technology, simplify structures (as Citi demonstrates), and control expenses, particularly as regulatory scrutiny (e.g., asset caps, risk exposures) heightens.
• Strategic shifts—such as GS exiting parts of consumer banking (e.g., Apple Card), Citi shedding non-core units—suggest that specialization or pruning of less profitable lines will be critical for sustainable returns.

Open Questions and Risks

• How sustainable is the current deal flow, especially given high interest rates, geopolitical uncertainty, and potential regulatory or tax changes?
• Will equity underwriting and advisory revenue growth depend upon continued strength in mega-deals, and what is the risk if those deals retarget past 2026?
• Can banks convert pipeline strength into actual fee realization without delays or cancellations?
• For banks like Citi, how quickly can their operating leverage improve to match peers, and how durable are the gains from restructuring and exits?
• What is the impact on risk-weighted assets and capital ratios as businesses shift or exit (as with Citi’s Russian divestiture or GS’s consumer banking pullback)?