Bank of America CEO Brian Moynihan projected a significant downturn in third-quarter investment banking fees, expecting them to fall by over 10% to a range of $1.6 billion to $1.8 billion, down from $2 billion in the same period last year. Sales and trading revenue is anticipated to remain flat compared to last year's $5.4 billion. This announcement, made at the Barclays Global Financial Services Conference, caused Bank of America shares to drop 5.14% and pulled down the S&P 500 Banks Index by 2.7%. Moynihan attributed the slowdown to several factors, including the impact of "higher-for-longer" interest rates on financing activity, deleveraging in Asia prime brokerage, and tough comparisons to a strong Q2 2026.
The warning from Bank of America was not an isolated event. Citigroup CFO Gonzalo Luchetti also indicated that his firm's investment banking revenue for Q3 was tracking for only low-single-digit growth, a sharp deceleration from their robust second quarter. The broader market for investment banking is estimated to be down about 10% in the third quarter according to Dealogic data cited by Moynihan, with Bank of America expecting to fall slightly more than the market average due to its positioning. While deal pipelines remain solid, the gap between potential and closed deals has widened.
Several macroeconomic factors are contributing to this slowdown. Geopolitical uncertainty, particularly the U.S.-Iran conflict driving oil prices above $100 per barrel, is making boards and CFOs hesitant to proceed with major transactions. The 10-year Treasury yield hovering near 5% has increased the cost of financing for leveraged buyouts and other debt-heavy deals. Furthermore, the Federal Reserve raised the federal funds rate by 25 basis points to 3.75%-4.0% this week, marking the first hike since 2023. This "higher-for-longer" rate environment changes the economics of dealmaking, making leveraged buyouts more expensive and prompting strategic acquirers to reconsider capital deployment at elevated borrowing costs.
Despite the overall challenging environment, some banks are expected to be more resilient. Goldman Sachs and JPMorgan, with their strong positions in M&A advisory and dominant equity capital markets, are seen as having "shock absorbers" that mid-tier investment banks lack. Goldman Sachs, in particular, has seen a 37% increase in year-to-date investment banking fees through the first half of 2026. However, a significant deceleration in Q3 would test the durability of this recovery. The upcoming earnings reports in mid-October will clarify whether these larger institutions can defy the broader trend or if the slowdown is pervasive across the industry.
