U.S. brokerage Oppenheimer downgraded Goldman Sachs (GS.N), Jefferies Financial (JEF.N) and Carlyle (CG.O) on Wednesday, citing a threat to dealmaking from uncertainty over President Donald Trump's tariff policies.
The move highlights growing concerns among Wall Street analysts, who had been optimistic about a rebound in M&A activity in 2025, following Trump's return to the White House, but are now rather rattled by a trade war.
The current market situation has forced companies to rethink their M&A plans, despite having capital to invest and stabilized interest rates, the brokerage said.
This will hit investment banks, which generate billions in earnings from M&A advisory fees from structuring, negotiating and executing deals.
A strong dealmaking environment is also crucial for investment firms to monetize assets and redeploy capital.
"We fear that the current uncertainty over tariffs, a fiscal 'detox' and the general upheaval of 80 years of trade and security arrangements is likely to cause a pause in M&A activity," Oppenheimer analyst Chris Kotowski said.
The Trump administration is tearing up global trade norms that have defined the world economic order for several decades, targeting allies such as Canada and the European Union.
JPMorgan Chase (JPM.N) CEO Jamie Dimon, who had previously stressed that tariffs implemented for national security reasons outweigh inflation concerns, said this month that companies could be hurt by uncertainty, according to media reports.
Morgan Stanley has also said that market volatility and economic uncertainty, fueled by shifting tariff policies, will likely delay the investment banking rebound.
Oppenheimer downgraded Carlyle, Jefferies and Goldman Sachs to "perform" from "outperform" and said it now expects investment banking revenues to be flat in 2025, compared to an earlier forecast of a 32% jump.
Shares of Goldman Sachs and Jefferies fell nearly 1% in premarket trading.
Jefferies will report results next week, offering the first glimpse into the investment banking sector's performance in the first quarter.
