The American deal machine is sputtering | USAEMALL.com

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is a former global head of equity capital markets at Bank of America and is now a managing director at Seda Experts

Dealmakers on Wall Street and in the City have plenty to worry about. After a sluggish first quarter, market conditions have suddenly taken a sharp turn for the worse. Stock prices are tumbling, economic jitters are spreading and many transactions are likely to be shelved.

Investment bankers are no stranger to cycles. Boom years bring deals and windfall bonuses; lean years bring austerity and pink slips. But if 2025 marks the third slow year out of the past four, then this is no ordinary downturn — it begins to look like something more existential.

The year began with great expectations. Donald Trump returned to the White House, the economy was humming, and interest rates and inflation were gliding downward. Bank chiefs trumpeted a revival in mergers and IPOs. Wall Street was regaining its swagger.

But bankers have since lost their mojo. Even before last week’s tariff bombshell, Wall Street’s sunny disposition had clouded over. Trade disputes and geopolitical tensions were dragging down market sentiment, sending the S&P 500 and US dollar into a funk, while investors pulled money from American equities at an alarming rate.

The numbers tell the story. In the first quarter, global investment banking revenues fell 5 per cent year over year. M&A deal count hit a two-decade low, and getting offerings across the finish line was a struggle. LNG exporter Venture Global and artificial intelligence hyperscaler CoreWeave both had to slash the price and size of their IPOs just to push them through.

And what once looked like another ho-hum year is now flirting with outright disaster. Trump’s shock tariff announcement has sent markets into a tailspin, making a return to the old cyclical highs much more elusive.

Outside the US, deal activity had inched up from rock bottom, but not enough. Chinese battery maker CATL is expected to raise $5bn in Hong Kong, but underwriting commissions are wafer-thin. Fee compression abroad makes it difficult to fill the revenue gap left by a sputtering American deal machine. Meanwhile, a sharp global equity sell-off threatens to stall overseas transactions, too.

Facing flagging revenues, banks follow a familiar playbook: cut costs. Several bulge-bracket groups have reportedly axed junior and mid-level bankers. Officially, the RIFs (“reductions in force”) amount to routine performance-based pruning. Insiders know better. Lay-offs are coming earlier and deeper than usual, grimly foreshadowing what’s to come if business doesn’t improve. 

For those made redundant, the experience feels mercilessly clinical. The boss, flanked by an HR executive, delivers a scripted speech about cost management. Then the hammer drops: “You’re at risk of redundancy.” The HR representative chimes in to explain the severance package. Minutes later, it’s over.

The whole process feels lifted straight from Up in the Air, except the messengers don’t (usually) look like George Clooney or Anna Kendrick. There’s no negotiation, no reprieve.

For those who remain, the pressure ratchets up. Junior bankers grind harder, reluctant to be the analyst who actually takes a so-called protected weekend. At the senior level, the desperation is more subtle, but no less acute. With deals scarce, the loss of any major mandate — a DDA, or “deal done away” — stings much more when the pipeline is running dry.

The result is an atmosphere of nervous energy — pitches, models, decks churned out in a frenetic blur, most destined to disappear in the inboxes of uninterested (and overbanked) clients. The hamster wheel, somehow, spins faster in bad times than in good.

Not all suffer equally. Seasoned rainmakers can ride out the storm. But for laid-off junior and mid-level bankers, prospects are dim. Jobs are scarce, and redundancy carries an unspoken stigma. Potential employers often assume that anyone jettisoned “never had the makings of a varsity athlete,” as Junior Soprano memorably put it. Losing one’s job can mean losing an entire career track.

This, then, may be more than a cyclical slump. It smacks of a reckoning. The pandemic-era deal frenzy looks, in retrospect, like a fever dream, and the soggier, diminished present may be the new normal.

Still, optimism remains an industry staple. The rallying cry will shift: if not this year, then next. The deals are coming. The IPO window will open. The year 2026 will be a blockbuster. Wall Street always believes in the next boom, because it has to. The alternative is simply unthinkable.