Investment Banking: Industry Trends Q2 2025

Investment banking in Q2 2025 reflects a market in transition, adapting to rate stabilization, shifting deal dynamics, and tighter margin environments.

In this in-depth analysis of the Investment Banking Industry for Q2 2025, we break down the key trends shaping the industry and what that means for MBA and Master’s applicants, job seekers, and Investment bankers.

We observed 7 trends:

1)    Investment Banking Revenues See Broad-Based Growth Across the U.S. Peer Group
2)    IPO and Advisory Activity Rebound Signals Capital Markets Are Reopening
3)    Equities Trading Surges as Clients Re-Engage Amid Volatility
4)    Fixed Income Trading Rebounds But Shows Mixed Results Across Firms
5)    Net Interest Income Growth Slows as Deposit Costs Rise Across the Board
6)    Credit Quality Holds, But Consumer Stress Emerges in Key Segments
7)    Cost Discipline and Restructuring Define Strategic Priorities

Trend 1: Investment Banking Revenues See Broad-Based Growth Across the U.S. Peer Group

The second quarter of 2025 delivered strong performance across investment banking divisions, marking a period of broad-based revenue momentum. The aggregate net revenue for the U.S. investment banking peer group rose 15% year-over-year (YoY). This increase was supported by a rebound in equity underwriting and M&A advisory, particularly in the latter half of the quarter.

Goldman Sachs leads

Goldman Sachs led the peer group in investment banking net revenue, posting a 26% YoY increase to $2.19 billion, driven by strength in both advisory and equity underwriting.

Morgan Stanley reported $1.53 billion in IB revenue, while JPMorgan Chase saw a 28% YoY gain in advisory revenues. Much of this rise to a resurgence in sponsor-led M&A and increased equity capital markets activity.

Goldman Sachs Advisory Revenue - 71% YoY growth in Revenue

The advisory business showed notable momentum. Goldman’s advisory revenue alone grew by 71% YoY, reflecting an uptick in strategic deals and restructurings. While debt underwriting remained mixed, equity issuance gained traction as market conditions stabilized.

Equity Underwriting – Biotech and Clean Energy Ahead Across Industry

The performance in equity underwriting was particularly visible in sectors such as biotech and clean energy, where multiple mid-cap offerings were successfully completed in late Q2. This resurgence was not isolated to large-cap banks.

Regional players and second-tier bulge bracket firms experienced similar directional improvement, although on a smaller revenue base. This consistency across institutions suggests a more durable return of activity rather than a few isolated outliers.

Trend 2: IPO and Advisory Activity Rebound Signals Capital Markets Are Reopening

Q2 2025 marked a shift in capital markets sentiment, with investment banks reporting a noticeable revival in IPO issuance and M&A advisory activity. This uptick became more pronounced toward the latter half of the quarter, as interest rate stability and improved market confidence encouraged deal execution.

Public Equity Offering In Biotech, Industrial AI and Software – Fuelling IB Revenue

Several major U.S. banks exceeded expectations on investment banking revenue, fueled by a stronger-than-expected rebound in public equity offerings and strategic advisory mandates.

There was an increase in equity underwriting across mid-cap and growth sectors, particularly in biotech, industrial AI, and software.

Deal Pipeline Improving But sensitive to Macro indicators

Deal pipelines are materially larger compared to Q4 2024 and early Q1 2025. However, banks emphasized that timing remains sensitive to macro indicators, particularly inflation and monetary policy. While many deals are now moving forward, there is still caution around execution windows and pricing flexibility.

Divestitures and PE Sponsorship

The improvement in advisory activity reflects broader strategic movement among corporates. Companies are reevaluating capital allocation, exploring divestitures, and re-engaging with private equity sponsors in light of stabilizing borrowing costs and improving equity market valuations. The rebound in sponsor-backed M&A, in particular, is noted by both Morningstar and Bespoke as a key driver of advisory fee growth.

Overall, Q2’s rebound in capital markets activity, particularly in IPOs and M&A, suggests a cautious but real reopening of the investment banking environment, with large firms converting more mandates into executed transactions than in any quarter since early 2022.

Trend 3: Equities Trading Surges as Clients Re-Engage Amid Volatility

Equities trading revenue saw robust growth in Q2 2025 across the U.S. banking peer group, as market volatility, stronger client flows, and the rotation back into risk assets supported heightened activity.

Equity sales and trading revenue grew by 18% year-over-year (YoY) on average across top U.S. banks. This marked the second consecutive quarter of double-digit growth for the segment, driven by both institutional demand and elevated turnover across global equity indices.

Goldman Sachs dominates

Goldman Sachs continued its dominance in this area, delivering $3.29 billion in equities trading revenue for the quarter. The bank cited higher volumes in cash equities and derivatives, as well as improved client positioning after Q1’s rate-driven pullback.

Morgan Stanley, which maintains a significant presence in prime brokerage and equity financing, also posted strong results, with equities revenues increasing to $2.88 billion, compared to $2.42 billion a year earlier.

This trend was not isolated to the bulge bracket firms.

Tech, Energy and Cyclical Sectors – Emerging as Winners

Regional players and European investment banks with U.S. exposure also benefited from the rise in client activity, particularly around tech, energy, and cyclical sectors (manufacturing, construction, chemicals, consume electronics, enterprise software, airlines and shipping)

June Strongest Month - Equity Execution

The rise in equities trading activity coincided with a modest decline in market-wide volatility indexes, signaling that clients were increasingly comfortable re-entering markets amid improved macro visibility. Trading desks saw an increase in structured product volumes and institutional rebalancing, with several firms noting that June was one of the strongest months for equity execution in over two years.

Long-short hedge funds – Entered in Q2 2025

Another driver of volume was renewed engagement from long-short hedge funds (both long and short positions in investments) and multi-strategy platforms, many of which had de-risked during late 2024 but began reallocating in Q2 2025.
Also, Prime brokerage balances were rising again after a year-long lull, suggesting growing institutional confidence in market conditions.

Sector-Specific Volatility & High Trading Activity - Benefiting Banks

Despite global uncertainties around tariffs, geopolitics, and monetary policy, equity trading desks are increasingly capitalizing on sector-specific volatility and divergence in macro positioning. Banks are also benefiting from improved technology infrastructure, allowing tighter execution spreads and enhanced client analytics, especially in cross-asset platforms.

Overall, equity trading has become a key revenue pillar in 2025, helping offset areas still recovering, such as leveraged finance and debt capital markets. As long as global asset flows remain dynamic, this trend is expected to persist into the second half of the year.

Trend 4: Fixed Income Trading Rebounds But Shows Mixed Results Across Firms

Q2 2025 delivered a partial rebound in fixed income, currency, and commodities (FICC) trading, though results varied significantly across the major investment banks.

The total fixed income trading revenue rose 7% year-over-year (YoY) across the U.S. peer group, supported by improved rates and credit trading. However, performance diverged sharply between firms with strong macro trading franchises and those more exposed to spread products.

JPMorgan Chase Leads in FICC

JPMorgan Chase led the group with $5.1 billion in FICC revenue, up 12% YoY, driven by continued strength in U.S. Treasuries, mortgage-backed securities, and emerging markets rates trading. The firm noted sustained client engagement across rates desks, particularly as hedging and reallocation strategies picked up amid monetary policy inflection points.

Citigroup, meanwhile, reported $4.6 billion in fixed income trading, up 9%, with strong performance in both FX and credit markets.

Corporate Bonds and Municipal Bonds – Low Recovery

However, the recovery was less pronounced for firms more reliant on corporate bonds and securitized product flows. Goldman Sachs reported $2.7 billion in FICC revenues, essentially flat YoY, as strength in macro trading was offset by weaker structured credit activity. Morgan Stanley also reported modest growth of 5% YoY, hampered by muted demand for municipal and high-yield bonds.

The macro backdrop in Q2 featured relatively stable rates, a narrowing credit spread environment, and lower primary issuance in high-yield markets. This led to a more muted performance in spread-driven products, including agency mortgage trading and leveraged credit. However, volatility around central bank policy and U.S. labor data created trading opportunities in sovereign curves, benefiting macro desks.

Tariff Triggers Demand for Hedging and Cash Management Solutions

Several banks cited rising client demand for hedging and cash management solutions as treasurers and corporates responded to shifting rate expectations. The quarter also saw increased engagement from real-money accounts, particularly pension funds and insurance firms, looking to rebalance fixed income allocations.

Still, FICC remains a more uncertain revenue stream heading into the second half of 2025. While Q2 results suggest stabilization from last year’s compression, the divergence across firms highlights the importance of platform diversity and global reach in sustaining trading volumes.

Banks with Strong Electronic Execution – At an Advantage

Analysts noted that banks with strong electronic execution capabilities and integrated macro platforms were better positioned to benefit from fragmented flows and shifting liquidity conditions.

Trend 5: Net Interest Income Growth Slows as Deposit Costs Rise Across the Board

The tailwind of rising interest rates that buoyed bank earnings over the past two years is beginning to taper.

Net Interest Income Growth Moderated – Slower Loan Growth

In Q2 2025, net interest income (NII) growth moderated across the investment banking peer group, largely due to increasing deposit competition, slower loan growth, and shifts in funding mix.

NII rose 3.4% quarter-over-quarter (QoQ) across the top U.S. banks, but this was well below the double-digit pace seen in 2023 and early 2024.

JPMorgan Chase, despite its scale, saw net interest income decline 1% sequentially, with executives citing a rise in deposit betas and pressure on corporate balances. Citigroup reported modest NII growth of 2.8% QoQ, driven by international lending spreads, but also acknowledged that deposit repricing was squeezing net interest margins.

Morgan Stanley, more reliant on wealth and investment management flows, posted flat NII versus Q1, while Goldman Sachs saw NII decline due to elevated wholesale funding costs.

Competition for Deposits – From Non-Bank Lenders and Digital Savings Platforms

A key pressure point has been the intensifying competition for deposits, particularly among high-yield savings products and institutional cash. As the Federal Reserve signaled a pause in its rate-hiking cycle, banks were forced to offer higher yields to retain clients, especially in the face of aggressive moves by non-bank lenders and digital savings platforms. This dynamic has led to margin compression, particularly on non-interest-bearing accounts.

Furthermore, the loan-to-deposit ratio across the peer group declined slightly, reflecting cautious credit extension amid macro uncertainty and tighter capital rules. While demand for corporate credit remains healthy in certain verticals, such as infrastructure and defense, consumer credit growth has plateaued, and commercial real estate lending remains limited.

While NII remains a core earnings pillar, the era of effortless expansion is ending. Investment banks are being forced to refocus on client engagement, operating leverage, and product innovation as top-line rate benefits recede.

Trend 6: Credit Quality Holds, But Consumer Stress Emerges in Key Segments

Credit quality across the banking sector remained broadly stable in Q2 2025, but early signs of stress are surfacing in consumer-facing portfolios, especially unsecured credit and lower-income segments.

Stress on Unsecured Credit in Lower-Income Segments

Nonperforming loan (NPL) ratios held steady or rose only modestly across major institutions, with corporate and commercial loan books remaining resilient. However, the consumer credit segment saw a 15% quarter-over-quarter increase in delinquencies, particularly in credit cards and unsecured personal loans.

Travel and E-Commerce IMPACTED

JPMorgan reported that while overall charge-offs remained low, card net charge-offs rose to 3.5%, up from 2.9% in Q1 2025. The bank noted that lower-income households are showing signs of financial strain, with payment rates falling and utilization rates increasing. Citigroup similarly highlighted a rise in retail card delinquencies, especially in portfolios tied to discretionary spending categories like travel and e-commerce.

Consumer instalment loan portfolio, Auto and Point-of-sale lending Affected

Meanwhile, Goldman Sachs noted deterioration in its consumer installment loan portfolio, prompting the firm to tighten underwriting standards and increase loan-loss reserves by $320 million in Q2. Morgan Stanley, which has more limited exposure to consumer credit, reported minimal deterioration, though it flagged potential risks in auto and point-of-sale lending channels.

Commercial real estate (CRE) portfolio – High Risk with Weak Occupancy & Refinancing risks

While corporate credit quality remains solid, banks are monitoring stress in commercial real estate (CRE) portfolios, particularly office properties in secondary urban markets. Banks have proactively reduced CRE exposure, but watchlist loan balances in CRE rose 6% QoQ, driven by weak occupancy and refinancing risks.

Credit Risk Frameworks – Monitoring sponsor-backed loans

On the institutional side, leveraged lending remains relatively contained, with banks emphasizing stricter underwriting and syndication discipline. There has been limited evidence of systemic deterioration in sponsor-backed loans, though elevated debt service burdens remain a concern amid tight financing conditions.

Importantly, banks are taking a cautious approach. Loan-loss provisions rose modestly across the board, and forward-looking indicators, such as internal risk rating migrations and payment rate monitoring, are now playing a larger role in credit risk frameworks. According to Morningstar, the average loan-loss provision increase across large banks was 9.1% in Q2, reflecting prudent preparation rather than deteriorating fundamentals.

Student Loan repayment trends – A Metric Closely Monitored for Q3 and Q4 2025

The emerging theme is one of selective pressure, not widespread weakness. While consumer credit stress is rising in certain pockets, corporate credit remains well-supported by strong balance sheets, stable cash flows, and limited near-term refinancing needs. That said, the next two quarters will be critical as student loan payments resume, inflationary pressures linger, and household savings buffers thin further.

Trend 7: Cost Discipline and Restructuring Define Strategic Priorities

With top-line growth under pressure from slowing net interest income and uneven capital markets activity, cost control emerged as a central theme in Q2 2025 earnings across investment banks.

Operating expenses were flat or declined modestly at several large banks, as firms implemented headcount rationalization, technology consolidation, and strategic restructuring initiatives.

Marcus Consumer Business Wind-down, Technology Spending and Layoffs

Goldman Sachs, for example, reported a 5% year-over-year reduction in total operating expenses, attributing the decline to lower compensation accruals and ongoing efficiency gains from the wind-down of its Marcus consumer business. The firm also highlighted back-office automation and streamlined technology spending as core drivers of margin stability. Morgan Stanley undertook restructuring actions within its wealth and investment management segments, which led to a one-time charge of $160 million, but is expected to yield $450 million in annualized savings beginning in H2 2025.

Citigroup continues its multi-year simplification plan, reducing overlapping functions across international units. In Q2 alone, it eliminated 1,200 roles, focusing on middle management layers, and signaled further reductions through the remainder of the year. The bank reaffirmed its goal of achieving $2.5 billion in cost savings by year-end, largely through exits from non-core markets and investment in unified digital platforms.

JPMorgan, despite its scale, is also taking a cautious approach to expense growth. While investing heavily in AI, cybersecurity, and compliance infrastructure, the firm slowed hiring across several front-office functions and froze non-critical vendor engagements. Technology spending remained elevated, but management emphasized returns on digital investments tied to client experience and operational risk reduction.

Investments in Automation, AI-enabled compliance, and Cross-platform analytics

Rather than betting on a broad recovery, banks are investing selectively in areas like automation, AI-enabled compliance, and cross-platform analytics to ensure long-term scalability.

Key Findings

After two years of volatility, the quarter marked a subtle but significant recalibration: equity capital markets revived modestly, fixed income trading showed divergent results, and M&A pipelines began to stir under improving macro signals.

Growing Divide – Consumer and Institutional Credit Trends.

Yet this rebound is layered over structural cost-cutting, deposit repricing, and a growing divide between consumer and institutional credit trends.

Underwriting Focus – Technology and Healthcare

Deal volumes remained uneven, but underwriting desks showed renewed life in tech and healthcare issuance. At the same time, banks leaned heavily on trading franchises to offset subdued advisory revenue, while firm-wide restructuring efforts accelerated to sustain profitability.

Stress in Unsecured Consumer Lending

Credit performance held firm in corporate portfolios, though early stress signals emerged in unsecured consumer lending, prompting banks to reassess provisioning and risk models.

Investment Banks – Leaner Operating Models

Across the board, strategic discipline is taking precedence. From optimizing deposit costs to rightsizing headcount and doubling down on digital infrastructure, investment banks are pivoting toward leaner, more resilient operating models. The message from Q2 earnings was consistent: growth is returning, but it will be slower, more selective, and harder won.

Final Take

In a year defined by margin compression, regulatory scrutiny, and unpredictable macro trends, the firms that can reshape their operating models efficiently are best positioned to preserve profitability and reinvest in future growth.

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