Goldman Sachs CEO David Solomon on Iran war, dealmaking uncertainty: 'Things rarely move in a straight line'

Goldman Sachs reported its second-highest quarterly profit ever and topped expectations across its three main dealmaking businesses, with M&A advisory fees up 89% and more than $900 million of incremental revenue in the quarter. Management remained constructive on 2026 investment banking activity, but warned that Iran/Middle East conflict has dampened IPO and sponsor activity and that credit-loss provisions rose to $315 million, up 10% from $287 million a year ago. The stock gave back an early gain after the release as investors weighed strong dealmaking momentum against geopolitical and credit-related headwinds.

Analysis

The setup is better for GS’s fee mix than for the broad market: M&A and equity issuance are the highest operating leverage businesses in a late-cycle risk-on tape, while FICC is acting as a natural offset as rates/credit volatility normalizes. The second-order implication is that the strongest earnings sensitivity across the street is no longer a directional rates bet but a duration bet on animal spirits; banks with underappreciated advisory share and capital-light mix should keep out-earning the more balance-sheet-heavy models if deal volumes merely stay elevated rather than explode.

The more interesting read-through is on sponsors and pre-IPO platforms. If Middle East risk is suppressing IPO and sponsor activity now, that creates a near-term backlog rather than a lost pipeline, which can mechanically compress supply of new issues into a later window and support better pricing for the eventual reopening. That makes the near-term losers the late-stage private names and venture funds that depend on liquidity to fundraise, while the eventual beneficiaries are the best-known bankers with distribution power and the exchanges/market makers that capture the reopening flow.

The credit provision increase looks more like a warning on wholesale loan growth than a broad credit-cycle turn, but it matters because it can curb risk appetite inside banks just as underwriting demand improves. The key tail risk is not Iran per se, but a sustained geopolitical shock that keeps boards from approving transactions for 1-2 quarters; if that happens, the market will de-rate the current optimism quickly because the earnings setup assumes cyclically high activity, not just stable financing conditions.

Consensus still appears underestimating how uneven the next leg of the deal cycle will be: headline deal counts can remain strong while sponsor-heavy and IPO-dependent revenues stay muted. That favors firms with deeper strategic M&A share over firms reliant on capital markets reactivation, and it argues for buying the diversified winners on dips rather than chasing the whole basket after every upbeat earnings print.

Key Decisions for Investors

• Long GS / short KKR for the next 1-3 months: GS has cleaner exposure to strategic M&A and public-market fee recovery, while KKR is more dependent on sponsor liquidity and exit windows that remain geopolitically constrained.
• Buy GS on 3-5% post-earnings pullbacks with a 6-8 week horizon; risk/reward favors owning the advisory lever while the market still discounts the durability of deal activity.
• Pair long GS vs short a more FICC-sensitive money-center bank basket (e.g., C / JPM) for 1-2 quarters: the trade isolates advisory leverage versus balance-sheet trading normalization risk.
• Sell vol on GS via near-dated calls after sharp earnings-driven spikes; the core catalyst is multi-month deal recovery, but near-term upside can be capped if IPO timing slips again.
• Avoid initiating longs in late-stage private/VC proxies until the geopolitical backdrop stabilizes; use any reopening in IPO headlines as an entry point only after 4-8 weeks of sustained risk calm.