The U.S. financial industry is approaching the second half of 2025 with optimism. After the initial jolt from the announcement of higher U.S. tariffs in April, firms are more confident about their ability to manage policy shifts. They see strength in consumer spending, a favorable interest rate environment, and potential upside from regulatory reframing and artificial intelligence.
Those were some of the main takeaways from the 16th Morgan Stanley U.S. Financials Conference, which took place in New York on June 10 and 11.
“Sentiment is moving much more positively, and we think there is good news still coming, such as a new tax bill and more progress in tariff talks,” the chief financial officer of a regional bank said at the conference. “We’re expecting a strong second half of the year.”
Deal Pipeline Is Improving
As uncertainty related to policy declines and markets stabilize, the outlook for investment banking is getting brighter. Banks expect a pickup in M&A and IPOs.
“Capital market activity freezes when we don’t know what the endgame is, regardless of whether it’s positive or negative. That’s what happened in April,” said the head of banking of a large U.S. financial firm. “Now, with a little more clarity on tariffs and the economy, there has been some unlocking. M&A is super active.”
Investment banking could get an additional boost from interest-rate cuts by the Federal Reserve, according to financial services leaders presenting at the conference.
Despite the optimism, some bank executives said their corporate clients are still cautious about inventories and investments. Before making decisions, companies have many questions around the outlook for trade financing, supply chains and impacts of policy for their global footprint.
For insurers, corporate anxiety could mean new business opportunities.
“Our clients are looking for advice on how to deal with their supply chain issues and remove volatility,” the CFO of a global insurer said. “We’re seeing more demand for our solutions.”
Healthy Consumer Spending and Credit
Most speakers at the conference noted that U.S. consumers are still showing resilience, despite sharp fluctuations in sentiment in the past few months.
Even though consumers are not expressing much optimism about the economic outlook, discretionary spending is still holding up, and such metrics as average balances and credit are pointing to financial strength.
“When we look at the daily data on spending, we don’t see a negative impact of the tariff debate,” said the CEO of a mid-sized retail bank. “Our credit metrics are getting better on a seasonally adjusted basis since the fourth quarter. I’m cautiously optimistic about what I see.”
The CEO of a large bank spoke more carefully, reminding investors that there’s a possibility that macroeconomic data could show weakening conditions in the next few months.
“There’s a chance that unemployment and inflation will be getting worse soon,” the executive said. “If we have a downturn, we might have more stress than people expect.”
Prioritizing AI
The financial industry has embraced AI as a tool to improve operating efficiency over the next years and decades. Some of the benefits are already in place, such as using AI in call centers or in data analysis. Credit card companies, for example, can now run fraud tests in seconds before approving or declining purchases.
The CEO of a retail bank said he is personally engaged in his firm’s AI initiatives.
“More modernized companies will have more leverage,” the executive said.
The leader of another national bank emphasized of the need to act fast.
“We are committed with AI, but so is everybody else,” he said. “It will only make a difference if you deploy it first and quickly.”
Eyes on Regulation Changes
The more favorable regulatory environment under the Trump administration is another reason for optimism. Changes in regulation, from capital requirements to M&A rules, are likely to boost capital market activity, leading to better earnings for the sector.
“We expect to see an increase in transparency, more clarity on banking supervision, and ultimately we will know better what regulators are thinking,” one executive said.
Crypto is one of the areas benefitting from the administration’s new focus on regulation. With the development of a regulatory framework for this asset class, the financial industry is progressively incorporating digital assets into their portfolio of services, including brokerage and custody. Major asset managers are already offering such products as crypto ETFs.
“The problem before was that we were not sure we were allowed to work with crypto. But now regulators are supportive,” said the CEO of a major national bank. “There’s a complexity to crypto -- we still need to build the infrastructure -- but it’s an opportunity and we have to be ready to do it.”
