Wall Street still betting on 2026 deal boom, but Middle East unrest adds caution

A sign outside the New York Stock Exchange marks the intersection of Wall and Broad Streets in New York. (AP Photo/Julia Demaree Nikhinson, File)

Wall Street’s biggest banks still expect 2026 to be a strong year for dealmaking, although turmoil in the Middle East that has roiled global markets has tempered executive optimism.

Investment banking fees - earned from advising on mergers and acquisitions and underwriting deals - surged an average of 27 per cent across six major U.S. banks in the first quarter, with record dealmaking a key profit driver.

Executives pointed to strong pipelines and said dealmaking is expected to continue rising through the rest of the year. But the U.S.-Israeli conflict with Iran and broader economic uncertainty pose risks the longer the war goes on.

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“Looking ahead, planning, engagement and pipelines remain healthy, but of course, developments in the Middle East could have an impact on deal execution and timing,” JPMorgan Chief Financial Officer Jeremy Barnum told analysts.

Industry-wide investment banking revenue jumped 14 per cent to $28.2 billion in the first quarter, according to Dealogic data. JPMorgan - the biggest U.S. bank by assets - claimed the top spot in the rankings, followed closely by Wall Street powerhouses Goldman Sachs and Morgan Stanley.

“Volatility, of course, can change and impact conversations within a boardroom, but it doesn’t mean that the need to strategically grow or get access to capital goes away,” Morgan Stanley CFO Sharon Yeshaya told Reuters.

Big-ticket deals

Global M&A revenue surged 19 per cent in the first quarter to a record US$11.3 billion, Dealogic data showed, with Goldman Sachs topping the rankings, followed by JPMorgan and Morgan Stanley. The value of announced deals hit $1.38 trillion, the second-highest for a first quarter on record.

The flurry of blockbuster transactions represents a departure from the lean years for dealmaking, when tighter financial conditions curbed activity.

“We’ve seen good levels of engagement and good levels of activity in the pipeline that is in front of us,” Citigroup CFO Gonzalo Luchetti said on a call with analysts.

“Of course, if the conflict were protracted and deeper for a longer period of time, that may start introducing some risk of deferrals and things like that, to the second half of the year.”

Deal activity has been led by technology - especially artificial intelligence - as well as healthcare and financial services, which have seen some of the largest transactions.

“The environment for investment banking activity continues to be incredibly robust, particularly M&A activity,” Goldman Sachs CEO David Solomon told analysts on an earnings call.

Highlights include Devon Energy and Coterra’s $58 billion all-stock deal struck in February. A consortium led by BlackRock’s Global Infrastructure Partners and Swedish private equity firm EQT also agreed to buy U.S. power company AES in a $33.4 billion deal in March.

That same month, SoftBank-backed fintech PayPay raised $880 million in its U.S. initial public offering, while Amazon was reported to be planning an approximately $37 billion, 11-part bond sale.

“Dialog with clients still remains very active and very strong,” Wells Fargo WFC.N CFO Mike Santomassimo told reporters on a call.

Spotlight on IPO market

A strong pipeline of high-profile companies is lined up to enter public markets this year, led by Elon Musk’s SpaceX, ChatGPT maker OpenAI and rival AI startup Anthropic.

Combined, the three deals could roughly match the total raised by U.S. venture-capital-backed company IPOs over the past decade, according to an estimate by PitchBook analyst Kyle Stanford.

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The surge in high-profile listings is set to bolster Wall Street banks, which stand to earn hefty fees from underwriting IPOs, advising issuers and arranging follow-on deals.

Goldman’s Solomon said conflict in the Middle East led to a slight slowdown in IPO activity, particularly in March, but added the pipeline was “very full.”

“Equity markets have been extremely resilient and if that resilience continues, I do think you’ll see IPO activity accelerate again,” he added.

The benchmark S&P 500 index is nearing its first intraday record high since the conflict erupted, as stocks have found support this week on hopes that Washington and Tehran could return to the negotiating table to end the war.

A revival in equity capital markets typically lifts related businesses such as mergers and acquisitions advisory, lending and trading, as stronger market sentiment encourages companies to pursue deals and investors to deploy capital.

“As long as you see some of the volatility come down, you’re likely to see some of those IPOs come to market at some point,” Wells Fargo’s Santomassimo said.

(Reporting by Manya Saini in Bengaluru and Saeed Azhar and Tatiana Bautzer in New York; Editing by Rod Nickel)