Investment banking’s liberation year

One scoop to start: Billionaire investor Francesco Gaetano Caltagirone has clashed with Monte dei Paschi di Siena chief executive Luigi Lovaglio over plans for Mediobanca, a rift that threatens to unseat the head of one of Italy’s largest banks.

And another thing: An Ohio accounting firm is under scrutiny over its audit work at some of the off-balance sheet vehicles used by the auto parts manufacturer First Brands to amass a mountain of hidden debt before it went bankrupt.

In today’s newsletter:

• Banks report a Trump bump

• The IRS comes for sovereign investors

• Wall Street’s next Wall Street

‘The art of the deal . . . is possible now’

Last April after Donald Trump unveiled his “liberation day” tariffs, some on Wall Street wondered if they’d been wrong to put their faith in the US president, as global markets unravelled.

But in the months that followed, Wall Street entered one of its greatest-ever bonanzas that has propped up the fortunes of many financiers as a wave of aggressive mergers, large public listings and a loosening of regulations revived the animal spirits.

“CEOs definitely believe that the art of the deal and scaled consolidation is possible now,” Goldman Sachs chief executive David Solomon said on Thursday, as his bank reported bumper earnings for the final quarter of 2025.

Investment banking and equities trading drove the earnings of Goldman and Morgan Stanley, the FT’s Joshua Franklin reports.

Morgan Stanley chief executive Ted Pick said corporate America was coming out of a “stuck boardroom mentality” with executives more willing to borrow and make big acquisitions as interest rates ease.

Last year was the second-best ever for dealmaking, with a record number of megadeals announced.

So far this year appears to have the same momentum. Last week the FT scooped that Glencore and Rio Tinto have resumed talks over a potential megamerger that would create a mining behemoth with an enterprise value of more than $260bn.

And bankers will be optimistic that they can hit the jackpot advising the potential IPOs of the massive tech start-ups Anthropic, OpenAI and SpaceX, which are all gearing up for public offerings.

Meanwhile, deregulation of the banking industry has greased the wheels of large debt financings, and an opening of US retirement accounts to private capital investments has propelled new growth markets for the likes of Blackstone and Apollo.

Such developments have led Wall Street to put “liberation day” frustrations out of mind, though the window of opportunity to earn money may not last for ever. “Now there is really no more time to waste,” said Pick of the dealmaking environment.

All but one of the five big US investment banks this week reported an increase in quarterly fees from advisory work.

Only JPMorgan Chase, which reported earnings on Tuesday, posted a decline in fees from investment banking in the final quarter of 2025, with a 5 per cent decrease year on year, fuelled by a drop in debt underwriting fees.

While spirits are currently high, Trump could again pop Wall Street’s balloon if his more populist instincts take hold.

That may happen as US midterm elections approach and voters are frustrated with their economic circumstances. While financiers are celebrating the dealmaking boom, affordability is top of mind for many Americans.

Trump has recently pledged to cap credit card interest rates and ban big investors from buying single-family homes, angering large banks and private capital groups.

If there’s one lesson executives learned in 2025 it’s that their fortunes can reverse quickly.

The IRS’s meteor for private investors

Last year Trump threatened to upend capital markets by proposing a regime under which punitive taxes could be erected willy-nilly on foreign investors. After consuming weeks of headspace the idea was scrapped.

This year’s proposed tax asteroid looks no less disruptive, though it affects a much narrower group of investors — namely sovereign wealth funds. More of a meteorite strike.

At issue is Section 892 of the US tax code, used by certain foreign government investors to avoid paying tax on their US investments. If SWFs wish to claim the exemption, they can’t engage in commercial activity.

Just before Christmas the Internal Revenue Service published proposals to expand the definition of commercial activity. The new definition could include originating a single direct loan to a business anywhere in the world. 

The upshot: if a SWF — whose exemption from US tax came from its s892 status — made a direct private credit loan, it could be newly liable to pay tax on its entire US stock portfolio. Ouch!

The IRS proposals also go after the vehicles that SWFs have used to keep the tax exemption even when they hold direct stakes and co-investments in firms that do engage in commercial activities (pretty much all private equity deals).

The proposals could hit private capital where it hurts. State-owned investors held $550bn of private credit investments globally in 2025. And the volume of direct private equity investments made in the US last year more than tripled to $73bn, according to consultancy Global SWF.

So it’s not just foreign governments that will be hoping this meteorite misses them, FT Alphaville writes. The plan is a “potential bombshell for the private market investment landscape”.

The Park Avenue recovery in PE and banking

In London, top dealmakers have increasingly preferred to set up shop in the city centre, instead of trudging out to Canary Wharf, bolstering office leases in the City.

Similar preferences are starting to emerge in New York City as Park Avenue has emerged as a favoured destination for the world’s most powerful investment houses.

As one real estate executive told the FT, “New York . . . particularly the Park Avenue submarket is the best leasing market in the country.”

Just a few years ago, all of the action was in Hudson Yards, the former rail yard on New York’s west side that is seen as the city’s modern-day Canary Wharf.

As Wall Street groups left physical Wall Street over the past couple decades, they’ve relocated to neighbourhoods such as Hudson Yards, seeking spacious, modern office designs.

While Hudson Yards has attracted powerful shops including KKR and BlackRock and many large law firms, Park Avenue’s appeal has increased.

JPMorgan’s new headquarters, which the bank unveiled on Park Avenue to much fanfare in October, hosts a state-of-the-art health and wellness centre and 19 dining options.

The building has reminded Wall Street of the enduring appeal of the stretch of Manhattan home to some of the city’s wealthiest residents and oldest clubs. Major financial groups including Blackstone and Citadel are there.

DD is interested to hear whether any readers in Hudson Yards long to return to more traditional Midtown financial centres such as Park Avenue or 57th Street. 

Job moves

• Hg has named Dushy Sivanithy and Daniel Ward to a newly formed general partner-led secondaries team. The team is led by Sivanithy who joins from CPP Investments where he led the secondaries business. Ward also previously worked at CPP Investments.

• Citi has named Per-Henrik Lewander Nordic cluster head. He was previously chair of Citi’s global financial institutions group.

• Prosek Partners has named Josh Clarkson, Deirdre Bolton and Jon Schwartz partners of the communications advisory firm.

Smart reads

Ante up Prediction market providers aiming to dominate the world of sports are running into an obstacle, the FT reports. Sports gamblers like to make multi-leg bets, requiring liquidity the platforms don’t currently have.

Nickel and diming Charlie Ergen and his telco EchoStar have been enriched by their ties to SpaceX and its soaring valuation, Lex writes. But the good fortune hasn’t stopped the billionaire from quibbling with vendors over payments on cancelled contracts.

Information age As Wikipedia celebrates its 25th birthday, FT Magazine dove into the website’s struggle to survive a fractured information ecosystem, regulators and even violence.

News round-up

Revolut, Visa and Mastercard lose UK legal challenge over fee cap (FT)

BlackRock assets surge above $14tn after record quarter (FT)

US and Taiwan strike trade deal tied to $250bn chip investment (FT)

Head of UK’s Serious Fraud Office retires halfway through tenure (FT)

Bank of England accused of making ‘mistake’ in loosening capital rules (FT)

German AI start-up Parloa triples its valuation to $3bn (FT)