How Wall Street got it wrong

One thing to start: JPMorgan Chase chief executive Jamie Dimon sat down with the FT for an exclusive interview on the trade war, Washington’s relations with Beijing and the future of America’s economic pre-eminence. 

And another thing: Nvidia has said it expects to take a $5.5bn blow after the US clamped down on the Silicon Valley group’s ability to export artificial intelligence chips to China.

In today’s newsletter: 

How Wall Street miscalculated Trump 2.0

Much of Wall Street relies on hyper-accurate models: elaborate Excel spreadsheets that are filled with endless variables.  

Everyone from analysts to managing directors pride themselves on being able to foresee any possible outcome for a given investment, a deal or a hedge.

But with Donald Trump’s second ascent to the White House, their ability to predict what the president might do next has come crashing down.

Trump’s “liberation day”, which induced a global market freefall, has left some of the most influential figures on Wall Street shaken. 

Financiers who last time around had a seat at the table were left relatively powerless to rein in an epic economic miscalculation. In its wake, they felt an unsettling lack of influence inside the administration.

As the FT’s Big Read reports, Wall Street made a miscalculation. 

Trump and other administration officials such as vice-president JD Vance and Treasury secretary Scott Bessent repeatedly said they wouldn’t cater to the country’s wealthiest citizens.

Many thought those pledges were empty campaign promises. But when the tariffs rolled around, it was a turning point — a clear indication that Trump would never be Wall Street’s president.

It leaves the finance sector in a vulnerable position. Corporate takeovers are down the most in about a decade, elite law firms have come under fire and consulting giants have lost government contracts.

“We assumed that someone in the administration that had an economic background would tell him that global tariffs were a bad idea,” one Wall street executive said.

Others were even more blunt. “This is the stupidest economic policy that the United States has ever come up with,” said Anthony Scaramucci, the founder of SkyBridge Capital and Trump’s former White House communications director.

During Trump’s first administration, luminaries such as Stephen Schwarzman and Larry Fink were all members of a (shortlived) business task force called the Strategic and Policy Forum that underscored their ties to the president.

Back then, they enjoyed a direct line to the Oval Office. But not any more. To influence Trump to walk back his most draconian tariffs, JPMorgan Chase chief Jamie Dimon made an appeal on Fox Business — rather than a one-on-one with the president.

But high finance is now unable to sway Trump’s decision making. Instead, financial markets flexed their power and caused the president to retreat. 

“Trump is fine with Wall Street taking a hit,” said a person close to Trump. “But he doesn’t want the whole house to come down.”

Private equity groups hit pause on deals

Buying and selling companies is oxygen to private equity executives. 

But the prospect of fresh air appears to have been snatched away from the world’s downtrodden dealmakers — and this time, by the very man they thought would fling open the windows.

Following two years in which higher interest rates had brought much of the sector’s dealmaking activity to a halt, buyout executives and their advisers had been banking on Trump’s re-election in November to finally kick things off again.

But the economic uncertainty that has unsettled so much of Wall Street accompanying his sweeping tariffs is also forcing buyout groups to halt dealmaking activity all over again. 

“There is a pause . . . it’s hard to price things,” said one top executive at a US firm. “People are worried a recession is coming.” 

Multiple advisers to private equity firms said they had seen bidders walking away from processes in the past two weeks, while another said dealmakers were “pens down”.

Some late-stage deals have been signed over the past two weeks, including Silver Lake’s acquisition of a majority stake in chip designer Altera and KKR’s purchase of E45 moisturiser maker Karo Healthcare.

But others have been postponed, including the auction by 3i of Audley Travel, which was paused in the weeks leading up to Trump’s so-called liberation day, according to people familiar with the matter.

Deadlines for final bids for Boeing’s navigation unit have been pushed back several times, while an expected £4bn sale by buyout group Apax of insurance group PIB has taken longer than expected. 

Many will be watching to see what happens with Reckitt’s multibillion- dollar carve-out of its homecare brands, which has seen at least one firm trim its offer in recent days and some involved questioning whether a deal would go ahead at all.

Many private equity firms have been relying on financial engineering in recent years to return cash to their investors without selling companies at undesirable valuations, in the form of borrowing against their portfolios or selling their assets to themselves. 

Dealmakers may now be breathing for air for some time to come. 

Credit markets creak under pressure 

While we’re on the topic of tariffs snagging all different facets of finance, let’s dig into another corner that’s been impacted: the junk bond and leveraged loan market. 

After Trump’s tariff announcement, eight straight trading days passed with dead silence in the world of high-yield bonds. It was a notable shutout that finally ended on Tuesday with the pricing of a relatively high-quality refinancing.

High-yield issuance is way below April’s normal trajectory, and leveraged loans aren’t keeping pace either, according to data from the London Stock Exchange Group. 

This freeze in the market raises a question of how banks and lenders will finance transactions over the remainder of the year.

Not only is there less investor appetite for risky debt, but banks are also showing reluctance to provide short-term bridge financing, which acts as a placeholder until longer-term financing is secured. 

“Everything has been on hold,” says Bob Kricheff, the head of multi-asset credit at investment firm Shenkman Capital Management. “Nobody is trying to price a deal in this environment.”

Some banks, including Citigroup, Morgan Stanley and JPMorgan have pulled the plug on high-yield bond and loan deals that investors had so far been unwilling to back in traditional debt markets, said people briefed on the matter. 

While markets stabilised after Trump agreed to pause many new trade levies for 90 days, they are charging more to lend.

And even after a subsidiary of liquefied natural gas producer Venture Global ended the drought in high-yield bond markets — the company borrowed $2.5bn on Tuesday — bankers and investors cautioned that it did not yet signal an all-clear for other borrowers who turn to the critical funding source for capital.

Job moves

• Global Counsel has hired Sourav Bhowmick as director and lead for US and North America in its global investor services practice. He was most recently senior adviser at the Treasury department, and previously worked at Deloitte Consulting and Brunswick Group.

• Ares Management has appointed Richard Sehayek as co-head of Europe for alternative credit. He has been with the firm since 2023, and previously worked at KBC Financial Products.

• Fannie Mae has tapped Omeed Malik for its board of directors. He’s the president of 1789 Capital — which Donald Trump Jr recently joined as a partner — and founder and CEO of Farvahar Partners.

Smart reads

Recession risk There can be a large lag between the economy weakening and confirmation of an R-word event catching up, Lex writes. Wall Street might not be pricing in the real risk. 

Power struggles The billionaire Kwek family in Singapore has long been seen as a three-generation success story, Bloomberg writes. Then a father-son conflict exposed a rift. 

Taxman plight Employees at the Internal Revenue Service work their way through tax season as their agency is dismantled around them, The New Yorker reports. 

News round-up

Wall Street banks reap $37bn from Trump trading boom (FT)

Activist Elliott takes $1.5bn stake in Hewlett Packard Enterprise (FT)

Blackstone joins Vanguard to expand into individuals’ portfolios (FT)

Hermès overtakes LVMH for luxury’s top spot after weak sales spark sell-off (FT)

US wants to retain key tariffs on EU, say European officials (FT)

Mark Zuckerberg admits he considered spinning of Instagram in 2018 (FT)

Johnson & Johnson warns pharma tariffs could cause drug shortages (FT)