Oppenheimer, a U.S. brokerage firm, recently downgraded investment giants Goldman Sachs, Jefferies Financial, and Carlyle due to concerns about potential negative impacts on dealmaking stemming from President Trump's uncertain tariff policies. Analysts on Wall Street, previously hopeful for a surge in M&A activity in 2025 under Trump's administration, are now anxious about the impact of a trade war.
The ever-changing market conditions have compelled companies to reconsider their M&A strategies, despite having funds at their disposal and stable interest rates, as mentioned by the brokerage. Investment banks, known for earning significant revenues from M&A advisory fees related to deal structuring and execution, stand to be affected by this shift.
An environment conducive to dealmaking is vital for investment firms to leverage assets and reinvest capital. However, concerns over tariffs, fiscal upheaval, and disruptions to established trade and security alliances are anticipated to result in a slowdown in M&A deals, as per analyst Chris Kotowski from Oppenheimer.
The Trump administration's departure from long-standing global trade agreements has targeted traditional allies like Canada and the EU, causing significant uncertainty in the business environment. Leaders in the financial sector, such as JPMorgan Chase CEO Jamie Dimon, have warned of the adverse effects this uncertainty may have on companies.
Morgan Stanley also predicts that market volatility and economic uncertainty, driven by evolving tariff policies, could postpone the recovery of the investment banking sector. This change in outlook prompted Oppenheimer to lower its ratings on Carlyle, Jefferies, and Goldman Sachs. They now project that investment banking revenues will remain flat in 2025, contrary to their previous estimate of a 32% increase.
In response to this news, shares of Goldman Sachs and Jefferies experienced a slight decline in premarket trading. Jefferies is expected to share its quarterly results soon, offering insights into the investment banking industry's performance in the first quarter of the year.