A slowdown in dealmaking isn’t the only risk for banks from the Middle East conflict
Rupak Ghose
Investment banks continue to expect strong first-quarter revenues. On Tuesday, Citigroup guided to mid-teens year-on-year growth in investment banking and markets revenues, and Bank of America guided to double-digit growth for both business lines. A few weeks ago, JP Morgan provided a similar upbeat message.
But what are the risks if the war in the Middle East drags on?
In the short term, increased volatility is broadly positive for FICC trading desks with the week of March 3 seeing record derivatives trading volumes – and that turnover has only grown since.
Banks that are heavily exposed to macro trading in rates or have strong commodities trading franchises like Goldman Sachs will have benefited more than others.
Underpinned
Investment banking revenue guidance from US banks is underpinned by low double-digit growth in the industry wallet in the all-important US market this year. However, the industry wallet outside of the US is down year to date, with the Middle East and North Africa region 35% lower at US$258.5m, according to LSEG data, due to a combination of slower activity and a tough comparable last year.
MENA bond underwriting fees of US$137.3m in 2026 are 10% down but are well above the average levels of the prior five years. MENA loan syndication fees of US$70.6m are up 13%.
Where there has been particular weakness is across M&A and ECM, where fees were a mere US$38.2m and US$12.4m, respectively – down 67% and 82% on the year. These are the weakest levels at this point in a year since 2019 and around half the average for the last decade. In ECM, there is weakness across all areas – in IPOs, follow-ons and convertible issuance.
According to LSEG statistics, MENA investment banking revenues were at record levels in 2025, growing by 28% to US$2.2bn. This was two and a half times what investment banking revenues in the region had been a decade ago.
Hence, while MENA is only 1% of global investment banking fees, it is a key strategic growth engine for investment banks.
More than half 2025 revenues came from DCM and syndicated lending fees with 25% from M&A and 15% from ECM.
It is also worth noting that the United Arab Emirates and Saudi Arabia accounted for 78% of MENA investment banking fees – quite a concentration risk.
The LSEG table below illustrates the strength of international banks in the region. Although Standard Chartered and HSBC’s revenues are only slightly ahead of three US banks, the Middle East is more material as a percentage of their overall investment banking business. That said, their dominance is in debt issuance, which is the least cyclical of revenue streams. Sovereign and financial institution issuance makes up the bulk of Middle East debt underwriting volume and issuance is likely to remain strong from the former, given rising budget deficits.
So, while a downturn in local dealmaking in the Middle East might well expose the geographical prioritisation of the region by HSBC and StanChart, most big banks are too diversified for it to be a big worry – at least in terms of activity in MENA.
Bigger threat
The bigger threats to banks’ profitability may be twofold. Middle East sovereign wealth funds and family offices are big investors in Western markets, marquee deals and alternatives.
Last year, Saudi Arabia’s Public Investment Fund said it will refocus away from international markets, and there are now murmurings from Gulf states about the need for belt-tightening and domestic focus given recent events.
Simply put, the expense of defending themselves and restocking military supplies, combined with the detrimental effects of the war on their economies, will mean Gulf nations have less money to splash about abroad.
The other threat is from a potential broader deleveraging, if the war drags on, oil prices stay higher for longer and we move into a weaker economic environment. Private credit writedowns and redemption requests have dominated the headlines in recent weeks, and investment banks are likely to be more cautious with this key customer base.
Until now, the outlook for the huge hedge fund client base had been rosy – even if the turmoil led to significant trading losses at some of the largest clients of banks such as Citadel, Millennium Management, Balyasny Asset Management and other multi-strategy hedge funds. But any sustained industry underperformance would not bode well for vitally important bank financing revenues. As it stands, that – rather than the knock-on effect of fewer deals in the Middle East – is the biggest risk for truly global banks.
Rupak Ghose is a corporate adviser and former financials research analyst. Read his Substack blog here.
