Wall Street's third quarter: fees rose, but the deal backlog is thinning

The three largest American investment banks have now reported their third quarter, and the headline numbers look comfortable. JPMorgan Chase and Goldman Sachs published results on October 13th, Morgan Stanley followed on October 14th, and each reported higher investment banking revenue than a year earlier. Read more closely, however, the reports describe a deal market that lost momentum between July and September, an IPO window that narrowed rather than widened, and a fee backlog that is shrinking.

That matters well beyond Wall Street. Investment banking fees are the clearest real-time measure of whether companies are listing, merging and raising capital. For venture-backed companies waiting for an exit, and for the funds that need those exits to return cash to their own investors, the third-quarter disclosures are a more sober guide to the months ahead than the strong profit figures suggest.

Growth on paper, deceleration in practice

Goldman Sachs reported investment banking fees of $3.22 billion, 21% higher than in the third quarter of 2025 but 5% lower than in the second quarter of 2026. Advisory fees reached $1,654 million, up 18%, on higher completed M&A volumes. Equity underwriting rose 43% to $666 million, which the bank attributed to significantly higher IPO and secondary offering revenues, and debt underwriting rose 15% to $904 million.

JPMorgan, which said it remained first globally with a 9.2% share of the investment banking fee wallet, reported fees of $2,960 million, against $2,612 million a year earlier and $3,208 million in the second quarter. That is growth of 14% year on year, but a clear step down from the previous three months. Chief executive Jamie Dimon noted in the results that client activity in the commercial and investment bank had been strong, "although activity did moderate somewhat during the quarter".

Morgan Stanley was the weakest of the three on this measure. Its investment banking revenue rose just 2% to $2.16 billion. Advisory revenue improved to $887 million from $684 million on higher completed M&A in the Americas, but equity underwriting fell to $525 million from $652 million, which the firm put down to lower IPOs and block trades, partly offset by follow-on offerings. Fixed income underwriting slipped to $747 million from $772 million.

The backlog is the number to watch

The single most telling line in the round of results came from Goldman Sachs. The bank said its investment banking fee backlog decreased compared with the end of the second quarter and decreased slightly compared with the end of 2025. It did not put a figure on it. The backlog is the stock of mandates the bank has won but not yet completed; when it falls, it means completed deals are not being replaced by new ones at the same pace.

The market data point in the same direction. According to LSEG figures cited by Reuters on October 14th, global deal value in the third quarter fell 41% from the prior quarter to $993 billion, the first time since the second quarter of 2025 that the quarterly total dropped below $1 trillion. The same report described the IPO market as subdued, with several companies postponing listings because of difficult conditions.

Two explanations stand out. Advisory revenue is booked when a merger completes, so the strong advisory figures at all three banks largely reflect transactions agreed in earlier, busier quarters. Underwriting is closer to real time, and there the picture is mixed: Goldman reported higher IPO revenue, Morgan Stanley lower. A divergence of that kind usually reflects which banks led a handful of large deals rather than a broad, healthy market.

Trading carried the quarter

What carried the results instead was trading, driven by volatility. Reuters attributed that volatility to the Federal Reserve's interest rate decision and the war between the United States and Iran, which pushed investors to rebalance portfolios. Goldman's equities revenue rose 72% to $6.44 billion, Morgan Stanley's equity trading revenue rose about 41% to $5.8 billion, and JPMorgan's equity markets revenue rose 49% to $5 billion. Fixed income trading, by contrast, was flat or lower at all three: Goldman's FICC revenue was $3.47 billion, essentially unchanged, and Morgan Stanley's fixed income revenue fell 7% to $2.0 billion.

Much of Goldman's equities growth came from financing rather than pure trading. Equities financing revenue rose 96% to $3,365 million on prime and portfolio financing, which is to say lending to hedge funds and other leveraged investors. That is a lucrative business while markets are active and asset prices are high, but it is a bet on continued risk appetite, not evidence of a recovery in corporate dealmaking.

Private markets keep pulling in money

The asset management lines tell a separate and, for private markets, more encouraging story. Goldman's assets under supervision reached $4.10 trillion at the end of September, up from $3.45 trillion a year earlier, and alternative investments rose to $491 billion from $390 billion, with $34 billion of net inflows during the quarter. Incentive fees, earned when funds distribute gains, rose sharply to $587 million.

There was a cautionary detail, however. Goldman's investments line fell 85% to $50 million, which the bank attributed to net markdowns in debt investments. It is a small number for a firm of that size, but it is a reminder that the private credit boom carries valuation risk on the lender's own balance sheet.

Morgan Stanley's wealth business offered another lens on the IPO market. The firm gathered $232.4 billion of net new assets in the quarter, compared with $81.0 billion a year earlier, and said just over half was tied to IPO-related flows. Large listings create large pools of newly liquid wealth for founders and early employees, and the banks that run their share plans are well placed to capture it. Reuters also reported that Morgan Stanley holds underwriting roles in the expected IPOs of Anthropic and OpenAI, two listings that would on their own reshape the annual fee tables.

Investors were not persuaded

The market reaction was restrained. Reuters noted that US bank shares fell sharply in the third quarter as Treasury yields rose to multi-decade highs, raising concerns about funding costs and a prolonged slowdown in M&A, and that Morgan Stanley's stock was up about 5.1% for the year, behind the broader market. JPMorgan's results also included a $658 million loss on investment securities, a direct consequence of higher yields.

Our view

The third-quarter results confirm that 2026 will be a strong year for Wall Street fees, but they do not confirm that the exit market for private companies has fully reopened. Advisory income is a lagging indicator; the backlog is a leading one, and at Goldman it is falling. Dimon's remark that activity moderated, and LSEG's 41% quarterly drop in deal value, point the same way.

For founders, the lesson is that the window is selective rather than shut. Banks have the balance sheets and the appetite for very large, well-known listings, and the mention of Anthropic and OpenAI shows where their attention lies. Mid-sized venture-backed companies should not assume that a strong bank quarter translates into an easy route to market. For investors, the figures to follow over the coming weeks are fourth-quarter guidance on pipelines, the pace of postponed IPOs returning to the calendar, and whether markdowns in private debt remain an isolated line item or start to spread.

Sources

• SEC: Goldman Sachs Form 8-K, third quarter 2026 earnings results
• SEC: Morgan Stanley Form 8-K, third quarter 2026 earnings release
• SEC: JPMorgan Chase Form 8-K, third quarter 2026 earnings release financial supplement
• Pulse 2.0: JPMorgan Chase reports $15.3 billion Q3 profit as revenue rises 8%
• BNN Bloomberg (Reuters): Morgan Stanley beats quarterly profit estimates on equity trading strength

Filed under Banking & Finance. Written by InvestTimes Editorial under our editorial standards. Commentary and analysis for information only, not investment advice.