Wall Street's response to tariff shock: client calls and bonus worries
By Svea Herbst-Bayliss, Isla Binnie, Ross Kerber and Dhara Ranasinghe
(Reuters) - With markets crashing after U.S. President Donald Trump announced his latest tariffs, Citigroup’s banking head Viswas Raghavan called a global meeting of senior bankers on Monday and told them to get on the phone with their clients.
Raghavan's message was simple, according to one banker on the call: Stay close to clients because if you do not, a competitor will. Raghavan told them to assure clients that Citi, which nearly collapsed during the 2008 financial crisis, had plenty of funds this time to weather the tariff storm, said the banker, one of two who recounted the call.
Citi’s global meeting, which has not been previously reported, was one of many at banks across Wall Street since April 2, when Trump unleashed a tariff war that has wiped out trillions of dollars in market value across the globe – a painful bleed that was only stanched on Wednesday when he relented, announcing a 90-day pause on duties against some countries.
Citi declined to comment. Raghavan could not be reached after business hours on Wednesday.
In interviews, more than half a dozen investment bankers and money managers said they had spent days talking to clients who make everything from cars to insulated mugs to sportswear, helping them grapple with the swift and dramatic consequences of Trump's lurches on trade.
At Citi, Goldman Sachs, Bank of America, Lazard and elsewhere in conversations spreading into this week, several bankers said, they strategized how to respond to a flood of calls from corporate clients as they privately worried about their own bonuses this year.
Goldman Sachs and Bank of America declined to comment. Lazard did not immediately respond to requests for comment outside business hours.
'OH MY GOD'
The advice to corporate clients, several bankers said: Stay away from forecasting too much, given the uncertainty from the White House.
Clients were worried about jobs, the economy and credit, a senior financial industry executive said: “We get on the calls and people are saying, 'Oh my God, what's happening?'"
The flurry of behind-the-scenes conversations with clients, some details of which have not been reported before, show how Trump’s decision to raise U.S. tariffs to their highest in more than a century has sent shockwaves through the corporate world.
Uncertainty about Trump's policy direction is paralyzing companies' decision-making and could have dire consequences for the economy, analysts say. Trump's pause does not remove that uncertainty.
"Even if the administration decides to de-escalate global trade wars and shift their focus to other policy areas, we’re still not out of the woods," said Christian Hoffmann, head of fixed income for Thornburg Investment Management in Santa Fe, New Mexico. "Uncertainty remains exceptionally high."
In explaining his pause, Trump said people had been “jumping a little bit out of line.” He told reporters: “They were getting yippy, you know," using a golf term for wrist spasms.
GENUINE DISBELIEF
While Trump had telegraphed plans to raise tariffs for months before November's election, the severity and speed with which he ratcheted up the levies took investors by surprise.
"There was genuine disbelief that this was happening," Seema Shah, chief global strategist at Principal Asset Management in London, said of her conversations the morning after the tariffs announcement.
Trump's rapid escalation caused massive dislocations in global markets, particularly in the United States, where foreign investors saw new risks in formerly safe-haven investments like Treasury bonds and the dollar - two anchors of the global financial system.
One New York-based institutional investor said the most senior personnel at his fund met last week and again after the weekend to discuss how the volatility was impacting their portfolio.
The investor, who requested anonymity to speak candidly, said the risk team had scrutinized all their holdings for comparisons with drawdowns during past crises, envisaging potential losses on their equity positions of 10% or 20%. They debated whether they should have hedged against the tariff risk but decided it would have been too expensive, he said.
CalPERS Chief Investment Officer Stephen Gilmore said the $500 billion retirement fund for California’s public workers was well positioned but “we aren't immune to these market challenges," adding that the trade war could hit its investment returns, to be reported on June 30.
"The new tariffs and other policy changes are creating the kind of volatility that’s reminiscent of the Global Financial Crisis and the early stages of the COVID-19 pandemic,” Gilmore told Reuters in a statement.
DEALS KILLED
Trump's April 2 announcement immediately derailed or delayed several initial public offerings and other deals, according to interviews with more than a dozen investment bankers, private equity investors and portfolio managers.
One private equity investor in London who was scheduled to sign the paperwork to acquire a midsize tech company in Europe said he pulled the deal last Thursday.
Executives at New York ticket reseller Stubhub, Swedish buy-now-pay-later firm Klarna and fintech company Chime – all of which were scheduled to launch investor presentations this week – watched the markets and waited before deciding by the end of the week to delay their IPOs by at least a week or two, Reuters has reported.
One M&A lawyer, requesting anonymity, said they had started the year thinking it would be strong, with pent-up demand for IPOs and other transactions. “But when the VIX pops up to COVID-era levels, you can't do deals,” they said, referring to a volatility measure known as Wall Street’s fear gauge.
Investors were already bracing for disappointment when big banks start reporting first-quarter results on Friday. Global investment banking fees fell 4.9% to $21.47 billion in the quarter from a year earlier, according to Dealogic.
Bankers worry that this month's turmoil will further erode revenue - and possibly bonuses next year - four bankers said.
"The problem is that there is a confidence shock when it comes to investing in the U.S.," said Mabrouk Chetouane, head of global market strategy at French asset management firm Natixis Investment Managers. "The U.S. president is unpredictable for investors. The rules can change overnight."
(Reporting by Svea Herbst-Bayliss, Isla Binnie, Ross Kerber and Dhara Ranasinghe; Additional reporting by Milana Vinn, Tatiana Bautzer, Suzanne McGee, Carolina Mandl, Lananh Nguyen, Shankar Ramakrishnan, Abigail Summerville and Echo Wang. Editing by Dawn Kopecki, Paritosh Bansal and William Mallard)
