Wipeouts on Wall Street | USAEMALL.com

One scoop to start: Bond fund group Pimco has recorded a 17 per cent paper profit on its portion of a £3bn emergency loan that it and other lenders are set to provide to ailing utility Thames Water.

In today’s newsletter:

• Wall Street stocks take a hit

• Perella Weinberg’s messy dispute

• UK supermarket chains struggle under PE

Curtains for the Trump dealmaking boom?

It was a painful Monday for Wall Street that will cut more brutally into hopes of a dealmaking boom.

The S&P 500 index closed down nearly 3 per cent while the Nasdaq Composite dropped 4 per cent — its worst day in two and a half years. And a whole host of finance stocks, from private equity behemoths to top banks, were among the hardest hit.

The wipeout has been the biggest one-day market hit inflicted on financiers since Donald Trump moved into the White House in January.

It was only a matter of time before the administration’s aggressive trade policies hit financial markets. But the volatility is also putting a scare into the expectations of dealmakers, who had hoped for a boom in large takeovers, private equity activity and initial public offerings.

The mood shift was palpable in New Orleans last week, where the US’s top bankers and advisers gather annually for a conference at Tulane University’s Corporate Law Institute. It wasn’t quite as festive this year.

The administration has prioritised a muscular trade agenda. “Maga doesn’t stand for ‘Make M&A great again,’” said Treasury secretary Scott Bessent on Friday.

Unsurprisingly, private equity and boutique banks were some of the hardest-hit stocks on Monday. Private credit titan Ares Management’s shares were down 9 per cent; boutique bank Evercore dropped 8 per cent.

Yet some financial firms’ shares were saved from the worst in the final hour of trading in New York as investors appeared to swoop in and buy the dip. (We’re looking at you, PJT Partners).

Right on the heels of Mardi Gras, the gathering at Tulane would’ve been the perfect venue for a celebration of global M&A’s blistering return. Instead, this year’s takeaway was a collective disappointment that the hotly anticipated Trump bump has failed to materialise.

While Wall Street’s top brass try to figure out whether the volatility is temporary or risks worsening, some advisers have begun to grow bearish.

One top banker thought there was now about a 40 per cent chance of a recession. “So much for animal spirits,” he added.

That view is becoming the consensus after Trump said during an interview on Fox News on Sunday that he wouldn’t rule out a recession or a new burst of inflation.

Some on Wall Street sought solace online.

As Third Point founder Dan Loeb put it on social media platform X late Monday night: “We are born alone; we die alone and we navigate the Trump stock market alone.” Jefferies chief executive Rich Handler replied: “We all need a hug sometimes.”

Perella Weinberg vs Michael Kramer finally reaches court

Wall Street’s ego-fuelled clashes are typically kept behind closed doors. Bitter text exchanges and awkward dinners with managers rarely see the light of day.

Yet a decade-long legal battle between boutique bank Perella Weinberg Partners and a group of bankers the firm alleges plotted to start a rival group, has finally had its time in court over the past few weeks.

And their heated exchanges have spilled out into the open.

The crux of the fight is this: PWP has accused top restructuring banker Mike Kramer of improperly coaxing seven of the firm’s employees away to join a rival firm.

After being fired, Kramer shortly thereafter formed Ducera Partners in 2015 with nearly all of the existing senior bankers in his restructuring group at his prior employer.

Both sides are suing each other, and there’s a lot of money on the line. Kramer’s looking to recover more than $40mn in equity that the firm seized upon his termination, out of the nearly $100mn in total pay he accrued while working there over seven years.

Meanwhile, PWP is seeking to recoup $40mn in damages stemming from the cost of hiring replacement bankers, plus bonuses it paid to Kramer and his dissidents around the time of their terminations.

While the judge hasn’t made a formal decision, he has been sceptical about, first, the idea that PWP was damaged by Kramer’s alleged plot to start a new firm and, second, that the banker was unaware that his colleagues were taking steps to start a new firm.

The trial included some star witnesses, including 83-year-old banker Joe Perella, who explained to the court how much Wall Street had changed since the 1980s.

When he famously started his own boutique firm mere hours after resigning from First Boston Corporation, there were “no written agreements” prohibiting that sort of thing.

“So they started tying people down with lockups and whatnot,” he said. “But that’s the world of today; that wasn’t the world in ‘88.”

Supermarket chains and their private equity owners

Grocery stores have for decades attracted the interest of private equity buyers.

But two of the UK’s largest recent takeovers — TDR Capital and the Issa brothers’ £6.8bn deal for Asda, and US group Clayton Dubilier & Rice’s £10bn acquisition of Morrisons — are struggling mightily.

Both deals were struck amid an epic wave of takeovers between 2020 and 2021 when interest rates were low and markets were exuberant.

They’re now burdened by heavy debt costs and high inflation, and their PE owners are facing financial pressure and questions over their large debt burdens, reports the FT.

Grocers are volume-based businesses with low margins, meaning the underwriting is crucial. Such deals can either pay out or go sour quickly.

In the past, PE groups such as KKR and Cerberus have made billions on the likes of Safeway and Albertsons by getting the timing right.

But Asda and Morrisons face an uphill battle. The jump in interest rates in 2022 left the supermarkets paying hundreds of millions of pounds a year to service their debts. Both chains have also faced operational issues, which have eaten into their market shares.

Some large PE executives now question whether grocery stores are a business worth their attention.

“When you have 3 to 5 per cent ebitda margin, any swing you have hits you badly,” said the head of consumer at one major international buyout firm. “If you have those low margins and at some point any issue hits you, you don’t have any more cash flow to pay for your debt.”

TDR and CD&R are still optimistic they can make money, partially by holding their bets longer. Their grocers have also embarked on asset sales, including selling and leasing back some of their properties, and refinancing deals.

But thankfully for TDR and the Issa brothers, they only ploughed £200mn of their cash into the Asda deal.

Job moves

• The Wallenberg family has stepped up its succession planning: Jacob Wallenberg Jr, an executive at US start-up Ramp, will join the board of private equity firm EQT while Fred Wallenberg, a manager at industrial group Piab, will become a non-executive director of Investor, the main family investment vehicle.

• ​​Barclays has named John Kolz as global co-head of equity capital markets. He joins from RBC Capital Markets.

• Davis Polk has hired Michael Diz as a partner for the firm’s mergers and acquisitions practice in northern California. He was previously co-chair of Debevoise & Plimpton’s M&A group in San Francisco.

• Clifford Chance has hired Joanna Nicholas as a partner for its global financial markets team as it expands its collateralised loan obligations work. She joins from Mayer Brown.

Smart reads

Secret stakes Wealthy Chinese investors are quietly funnelling money into Elon Musk’s companies using an arrangement that shields their identities from public view, the FT reports.

‘Druckonomics’ Stanley Druckenmiller has spent years quietly running his family office, the FT writes. Now one protégé is Treasury secretary, another is vying for Fed chair, and the billionaire’s views on the US economy have become far more consequential.

In-your-face Lulu Cheng Meservey — who’s run communications for Anduril and Activision — is turning public relations into a public brawl, Business Insider reports. She’s ruffling feathers in the process.

News round-up

KPMG to merge dozens of partnerships in overhaul of global structure (FT)

Failed TDR-backed finance firm ‘misrepresented’ performance (FT)

Tanker carrying jet fuel for US Navy struck by container ship in North Sea (FT)

European Commission raids drinks groups over possible competition law breaches (FT)

Lloyd’s of London forecasts $2.3bn losses from LA wildfires (FT)

Ex-Barclays boss Staley accuses regulator of ‘destroying’ his reputation with ban (FT)

Glencore backs cobalt investment company planning to list in London (FT)

Donald Trump bets propel Michael Platt’s BlueCrest to 15% gain (FT)

NHS landlord Assura poised to accept £1.6bn bid from KKR consortium (FT)

Ford to inject €4.4bn into debt-ridden German subsidiary (FT)