As Donald Trump readies himself to return to the White House in January 2025, his pro-business rhetoric has the investment banking industry awash with anticipation. The investment banking sector, a bellwether for economic confidence, is gearing up for an unforgettable year. With global investment banking income expected to reach approximately $380 billion in 2024, with a compound annual growth rate (CAGR) of 2.02% leading to about $420 billion by 2029 — analysts predict a bull run for mergers, acquisitions, and debt markets.
The enthusiasm isn’t unwarranted. This month saw global merger announcements spike to billions of USD — such as Omnicom Group’s agreement to acquire Interpublic Group in a deal valued over $13 billion, and BlackRock’s acquisition of HPS Investment Partners for $12 billion — underscoring a marked uptick in deal-making activities. This growth, however, isn’t solely driven by optimism; it reflects strategic adaptations by banks to new geopolitical realities.
Richard King, head of corporate banking, EMEA, at Bank of America, said “I know it’s that time of year where bankers love to be bullish, but we actually do think that the current climate — political clarity and macro stability — will help drive M&A.”
For starters, merger and acquisition (M&A) trends in 2024 reveal a mixed bag. Deal volumes dipped 25% in the year’s first half compared to 2023, yet values soared by 5% due to high-profile megadeals in sectors like technology and energy. Notable transactions in the tech sector, such as Microsoft’s $69 billion acquisition of Activision Blizzard—initially valued at $68.7 billion but finalized at $75.4 billion—exemplify this trend. These high-value deals signal the increasing focus on innovation-driven growth, with investment banks acting as the architects of these landmark transactions.
Geopolitics plays an important role here. The U.S.-China trade tensions and the ongoing Russia-Ukraine conflict continue to reshape cross-border M&A. “The daunting combination of high interest rates, current valuations and political uncertainty has been a showstopper for many deals. Nevertheless, the strategic need for M&A continues to grow stronger, creating pent-up demand which will be unleashed as these uncertainties resolve,” remarked Brian Levy, Global Deals Industries Leader, Partner, PwC US, hinting at the sector’s adaptability.
Policy Shifts and Pro-Business Tailwinds
Investment banks are positioning themselves to thrive under Trump’s anticipated deregulation. In contrast to Biden’s ESG-focused and regulatory-heavy approach, Trump’s policies are expected to favour capital markets, reducing compliance burdens and accelerating growth. Some banks have already exposed their cards on plans to expand their advisory teams to take advantage of a pro-business environment.
According to Statista, the global investment banking market is foreseen to grow at a compound annual growth rate of 2.02%, reaching approximately $420 billion in revenue by 2029. However, caution prevails.
Despite the shift in regulatory priorities, ESG factors remain crucial. Over the past few years, investment banks have embedded sustainability into their decision-making frameworks. This trend is unlikely to reverse entirely, even under Trump’s administration. A Citigroup analyst observed that clients are increasingly seeking ESG-compliant investment options. Notably, in Q3 2024, global sustainable funds attracted approximately $10.4 billion in net new money, indicating a significant rise in ESG investment demand.
Banks are also doubling down on compliance. Lessons from the regulatory penalties of the last decade have spurred firms to weave in robust risk management practices, ensuring adaptability regardless of political shifts.
“Investment banking thrives in uncertainty. It’s where innovation meets opportunity,” says a bank analyst. This innovation-meets-opportunity mindset will be pivotal as the industry navigates the complexities of 2025. With President Trump’s administration somewhat seemingly ready to favour deregulation, investment banks have a chance to recalibrate their strategies, not only to capitalize on immediate gains but also to establish long-term growth pathways.
Analysts suggest that banks will double down on sectors likely to benefit from Trump’s policies, such as energy, defence, and infrastructure, which are expected to see increased funding and investment.
While the pro-business climate under Trump is likely to boost investment banking revenues in the short term, the industry’s long-term success will hinge on its ability to balance growth with risk management. The sector’s adaptability demonstrated through its response to changing regulatory landscapes and geopolitical challenges, is a reference to its resilience.
The investment banking sector, therefore, stands at a crossroads where opportunity and responsibility converge.
Adapting to Today’s Geopolitical Realities
Geopolitical dynamics will remain a double-edged sword. On one hand, eased relations between the U.S. and certain trade partners could unlock cross-border M&A opportunities, particularly in Asia and Europe. On the other hand, ongoing tensions with China and unresolved issues stemming from the Russia-Ukraine conflict may temper the pace of global deal-making.
“Geopolitical risk, in our view, is the wild card,” said Taylor Wright, co-head of global banking at Barclays. “It’s hard to plan for that but absent that, we see a lot of factors that suggest that the next 12 to 24 months should be very good for investment banking.”
To mitigate these risks, investment banks are leveraging advanced analytics and geopolitical advisory services to provide clients with tailored insights. JPMorgan’s 2024 Global Markets Outlook discusses various factors influencing investment strategies, including geopolitical risks. This cautious approach aims to strike a balance between pursuing lucrative opportunities and managing exposure to volatile markets.
According to S&P Global, the global corporate bond market is forecast to grow by 4% in 2025, with U.S. issuances playing a significant role, potentially exceeding $1.5 trillion. Banks like Morgan Stanley and Bank of America are expanding their debt advisory teams to meet the expected surge in demand. “Higher total debt means higher spending to fund interest payments. The U.S. government pays about 17% of its revenues to the owners of Treasury bonds,” said Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley. “If rates are unchanged, the cost of servicing the federal debt over the next 10 years could grow significantly larger, even with no changes to existing policy.”
Resilience in the Face of Change
That said, investment banking is no stranger to treading choppy waters. From the financial crises of the past to recent pandemic-related disruptions, the industry has demonstrated remarkable grit in holding the fort. The Trump administration’s anticipated deregulatory agenda presents a unique moment of opportunity for investment banks to thrive, particularly in areas like mergers and acquisitions, cross-border deals, and the debt market.
Albeit, success in 2025 will depend on more than just riding favourable political tailwinds. It will require banks to innovate, integrate ESG principles where feasible, and maintain vigilance over geopolitical shifts that could impact global markets. The key, as many leaders in the industry have opined, is adaptability.
The projected 5.7% growth in global investment banking income for 2025 is not merely a number — it’s a sign of confidence in the sector’s ability to weather change and capitalize on opportunity. Whether it’s meandering complex cross-border transactions, facilitating capital for innovation, or managing risk in fickle markets, investment banks are primed to be the architects of global economic activity in the year ahead.
As the clock ticks toward January 20, 2025, the financial world is keeping its eyes peeled. The decisions made now by investment banks, from boardroom meetings to trading desks, will not only determine their futures but also set the tone for global markets under the Trump administration. The industry’s mantra for the coming year could well be summed up as: “Adapt, innovate, and thrive.”
If the past is any indication, investment banks are ready to rise to the challenge.
Author: Richardson Chinonyerem
#Trump #FinancialMarkets #InvestmentBanking #Banking
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