Hi, Aaron Weinman here. The Fed raised rates on Wednesday. Let's unpack what that means for investment banking.
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1. The Fed raised its benchmark interest rates by three-quarters of a percentage point on Wednesday to a range of 1.5%-1.75%. It's the most aggressive hike since February 1994 — the same month President Bill Clinton lifted the US trade embargo against Vietnam.
When thinking about Fed Chair Jay Powell's latest increase, it's important to remember that these hikes started when interest rates were near rock-bottom. That meant borrowing costs for companies were dirt cheap, and investment banks feasted on record deal numbers in the capital markets (where companies raise debt to service their operations). Corporates across the credit universe turned to cheap capital as the economy recovered in the aftermath of the global pandemic.
Those record numbers, however, are now a distant memory. And they're in no danger of increasing in the short term. When rates rise, borrowers will have little interest in tapping the capital markets for new financing, and they'll be loath to refinance any debt they got their hands on during the cheap-money days.
Speaking during a Morgan Stanley conference, Andrew Morton, Citi's global head of markets, said the US investment bank's wallet was down 50%-55% compared to this time last year.
IPOs, bond or loan deals, and the lucrative M&A market are all down as Wall Street assesses a landscape severely different from the years of cheap money and an accommodative central bank.
That said, Wall Street execs that ply their trade in the opportunistic restructuring space have been waiting patiently in the wings for a smidgeon of volatility. As companies brace for weaker earnings, and some struggle to repay their debts, lawyers and bankers will look to pounce on chances to clean up their balance sheets through equity injections, debtor-in-possession financings, or bankruptcies.
In other news:
2. Elon Musk's go-to lawyer is a "streetfighter" in the legal world. Meet Alex Spiro, the 39-year-old litigator who helped the Tesla boss defeat a defamation suit. Meanwhile, The Wall Street Journal reports that Musk is expected to reiterate his desire to own Twitter when he speaks to the social-media company's employees later today.
3. Coinbase is fast-becoming the poster child for the depleted crypto space. The company announced plans to lay off 1,100 staff. Here's one manager who told Insider that Coinbase broke promises, which left him frustrated and disappointed.
4. PayPal just unveiled a new BNPL offering. PayPal Pay Monthly will allow users to split purchases into monthly payments spread over six to 24 month periods.
5. JPMorgan snared a Morgan Stanley exec to bolster its wealth-management team. Paul Halpern will join the rival US bank as its chief marketing officer.
6. HSBC canned one of its London-based traders after scrutinizing the person's cell phone, Bloomberg reported. The departure comes as Wall Street banks — under pressure from regulators — review bankers' messages on unauthorized messaging apps like Meta-owned Whatsapp.
7. Private-credit funds are playing a bigger role in financing leveraged buyouts. These funds started with the odd million-dollar ticket on a deal, but now they're lending billions of dollars toward transactions. Here's an explainer from Bloomberg on the evolution of this marketplace that's changing the capital markets.
8. "Russian Davos" just kicked off, but it's lacking any notable attendees from the West. Many business execs have shunned the event due to Russian sanctions and its invasion of Ukraine, giving folks from China, India, and the UAE center stage.
9. Wall Streeters enamored with remote work have flocked to Hawaii since the onset of the pandemic. Here's the best way to use those frequent-flyer miles for your next trip to the US' only archipelago.
10. German fintech Airbank just scored $20 million in Series A funding. Check out the pitch deck that the financial-management platform used to win over London-based Molten Ventures.
Done deals:
- Glade Brook Capital has closed its third strategic growth fund. The $1.5 billion growth-equity investor raised $430 million to back emerging companies across the software and fintech spaces, among others.
- Centroid Systems, a cloud services firm backed by private-investment firm VSS, has acquired Guardian Eagle, a data security consultant headquartered in St. Petersburg, Florida.
Curated by Aaron Weinman in New York. Tips? Email [email protected] or tweet @aaronw11. Edited by Hallam Bullock (tweet @hallam_bullock) in London.