(Reuters) -Jefferies' second-quarter profit fell short of estimates as equity underwriting weakness offset gains from merger advisory fees, but the investment bank said dealmaking could rebound later in 2025 as the economic outlook becomes clearer.

Uncertainty due to U.S. policy and geopolitical events slowed investment banking activity in the first two months of the March-May quarter, Jefferies said on Wednesday.

However, investor confidence has been recovering since May and clients are actively discussing transaction opportunities, the bank added.

"There's been a change over the last six to 10 weeks where the uncertainty that prevailed has diminished significantly," Jefferies President Brian Friedman said in an interview.

"Investors, corporates and sponsors are willing to make decisions based upon an expectation that there won't be material negative impacts from either U.S. policy decisions or geopolitics."

The results highlight how investment banks, once expected to be among the biggest beneficiaries under President Donald Trump's administration, are faring months into his second term.

Hopes of a dealmaking revival were dented by his tariffs, while market volatility prompted many companies to delay capital-raising plans. However, with Trump dialing back some of his harsher threats, dealmakers are hopeful that the long-awaited boom might finally be within reach.

"That change in sentiment is driving much more dialog, many more decisions to proceed into the IPO market or the M&A market ... and is lifting our backlog and likely to drive even better results in the third and fourth quarters," Friedman said.

Jefferies' net earnings attributable to common shareholders fell nearly 40% to $88 million, or 40 cents per share, in the three months ended May 31. Analysts on average had expected a profit of 44 cents per share, according to estimates compiled by LSEG.

The bank's shares fell nearly 2% in extended trading.

Revenue from equity underwriting halved to $122.4 million due to market volatility, particularly in the first two months of the quarter. Debt underwriting revenue was flat.

In a bright spot, however, advisory revenue climbed 61% to $457.9 million as the bank continued to gain market share.

Revenue from the capital markets business, which houses its trading desks, dipped 0.4% to $704.2 million as lower fixed-income revenue outweighed a stronger performance in equities.

The bank's results are closely scrutinized as they offer an early look into trends at Wall Street. Larger rivals - JPMorgan Chase, Goldman Sachs and Morgan Stanley - are scheduled to report earnings next month.