19-05-2025
Financing roars back on tariff truce: IFR
Animal spirits are starting to influence deal financing again after concerns about market volatility stemming from US president Donald Trump's gyrating tariff policy are starting to recede.
On May 12 the US and China, which has been hit particularly by Trump's changes in tariff policy since 'liberation day' on April 2, reached an agreement to roll back from tariffs of as much as 145% on Chinese imports into the US to 30%, subject to further review after 90 days.
'We recently lost out on a mandate as a competitor was prepared to go ahead with M&A financing for a client without asking for any conditions,' said a senior corporate advisory banker at a major lender.
The banker said his institution's policy was more cautious and would only finance deals on condition the market did not become overly volatile, such as if the S&P 500 Index fell 10% or government bond yields rose significantly.
'This explains why M&A has been on hold a bit so far this year. People are still keen to do, and support, deals but only with contingencies,' the banker said.
An advisory banker at a US institution said the fact that a bank was beaten to a deal by a rival less worried about the downside threat showed that things are already 'coming back and people are willing to accept more risk'.
He had been telling clients that the extraordinary volatility seen during April was more a temporary blip than anything lasting.
Indeed, it appears the appetite for deals has picked up after the initial pause. In the past week in the US, Dick's Sporting Goods agreed to buy Foot Locker for US$2.37bn and Texan utility NRG Energy made a US$12.49bn offer for several natural gas power stations from LS Power. On Friday, cable operator Charter Communications said it would buy Cox Communications for US$21.9bn. Outside the US, Canadian oil firm Strathcona launched a C$5.9bn (US$4.25bn) hostile takeover bid for MEG Energy.
The total value of announced M&A deals to May 15 this year was US$1.34trn, up 20% from the same period a year earlier, according to data from LSEG. Domestic US M&A was up 9% so far this year to US$875.5bn.
'This was not like Covid or the financial crisis, when the economic outlook was completely uncertain. OK, there was lack of clarity on where things might end up but Trump had put on tariffs in his first administration but that turned out to be a manageable consideration,' the second banker said.
He pointed to what major corporates had said during their first-quarter results. 'Earnings were pretty resilient and dividend and buyback policies have generally remained in place and been unaffected by tariffs,' he said.
'There is not a lot you can do with your supply chain in the short term but companies have been reviewing their capital expenditure. Those cuts will improve margins and provide capacity to do deals or reshore facilities.'
Investment bank bosses at Asia-focused bank Standard Chartered on Thursday said there had been 'a sense of relief' among clients in recent days following the thawing in the US-China tariff dispute, after deal activity had paused after April 2 as the scale of tariffs had come as a shock.
Dollar diversification
Although dealmakers generally have now brushed off the tariff tantrum, those in charge of making asset allocation decisions at institutions do seem to be changing their outlook and diversifying where they invest or park their assets beyond the US dollar, which has long been the dominant destination.
Isabelle Mateos y Lago, chief economist at BNP Paribas, said it was important to distinguish between 'return-seeking' investors and those, such as central bank reserve managers, who held US dollar assets for safety reasons.
The former had increased their exposures to the US compared with Europe after the pandemic but a readjustment was now happening. 'Since March, that has started to reverse. It has contributed to the depreciation in the dollar since the start of the year,' she said.
That was already detectable but the picture was less clear among reserve managers, since the official data lagged events.
'There is no evidence yet that treasurers using dollar assets such as US Treasuries as a safe haven have changed their portfolio allocations, but anecdotally they seem to be asking questions whether they can continue to do this as firmly as before due to policy uncertainty,' she said.
'US Treasuries are behaving more as a risk asset than a safe one in recent weeks.'
George Saravelos, global head of FX Research at Deutsche Bank, said he was detecting a change already.
'Our high-frequency foreign inflow data is continuing to show very tepid inflows into the US. There is persistent reporting of investors and countries reconsidering their dollar asset exposure, most recently in Taiwan," Saravelos said.
The second banker said M&A should continue to be reasonably strong for the rest of the year, but said the outlook for next year was unclear at this point.
Source: IFR
