U.S. Markets open in 4 hrs 36 mins

To Win the Trump M&A Bet, Wall Street Must Play the Long Game

James Langford

Donald Trump built a winning campaign around his negotiating prowess, but his first three months in the White House have shown Wall Street that even the new president can't deliver great deals overnight.

That won't kill the momentum in dealmaking advisory services that the largest U.S. banks experienced during the first three months of 2017, when Morgan Stanley ranked at the top of The Deal's M&A league tables, but it may slow the pace of further growth.

"We live in uncertain times," James Gorman, CEO of the New York-based company, told analysts on an earnings call in mid-April. "You're well aware of the political and geopolitical uncertainties that exist on the domestic front as well as abroad. How this will impact markets during the rest of the year is too early to predict."

Morgan Stanley, which handled 33 announced transactions valued at $100 million or more, was followed in The Deal's rankings by Goldman Sachs with 25, Citigroup  with 21, and Bank of America  and JPMorgan Chase , which each netted 19. At least one party in all the transactions tallied by the sister publication of TheStreet was based in the U.S.

While bankers remain optimistic that the looser regulations and pro-growth policies favored by Trump and a Republican-controlled Congress will benefit their businesses and the market for corporate transactions, they acknowledge the time frame may be longer than the market anticipated in the two months following the Nov. 8 presidential election, when the blue-chip Dow Jones Industrial Average rocketed past 20,000.

Faith that Trump's business skills combined with a GOP majority would enable him to act quickly on a corporate tax cut that might curb the highest rates by 20 percentage points took a blow in late March when the real estate mogul was unable to convince his own party to repeal Obamacare. Both Trump and House Speaker Paul Ryan had said the move was a necessary precursor to a tax overhaul.

Still, the GOP's control of both the White House and Congress generally means a "less interventionist approach" to enforcement of antitrust laws, said Ken Leon, an equity analyst with CFRA Research. The Obama administration used such laws to block transactions including General Electric's  proposed sale of its appliance business to Electrolux in 2015.

"The first quarter of 2017 showed one of the highest levels of recorded announced transactions in the last decade," Leon said in a note to clients.

Deal drivers, including corporate cash hoards and modest economic growth, are strong, and Trump's appointment of Makan Delrahim -- a former lobbyist in the technology and health-care industries -- to oversee the Justice Department's antitrust enforcement is another positive sign, Leon said. 

While Leon noted that corporate transactions might stall if boards and C-suite executives begin to doubtTrump's ability "to deliver pro-business policies," that hasn't happened yet.

"While of course people's dialogue includes a degree of discussion around regulatory reform and tax reform and the like, it isn't stopping the strategic dialogue, and it isn't stopping people or boards from considering strategic deals," JPMorgan CFO Marianne Lake said on an April earnings call. "We're not saying it has no impact, but it's still quite healthy."

Indeed, JPMorgan, Citi and Goldman Sachs all noted robust pipelines for investment banking, the business that includes deal advisory services as well as underwriting of stock and bond offerings. 

While the details of potential policy changes including the tax code and Trump's proposal to buoy the economy by boosting spending on roads and bridges have yet to be worked out "and will take a little longer than originally projected, we continue to believe that it's a matter of when and not if these changes will occur," Citi CEO Michael Corbat told analysts. "As that process unfolds and outcomes become clear, I expect business will react accordingly as sentiment shifts from optimism to confidence."

For more on The Deal's league tables for M&A, private equity, restructuring, bankruptcy and more, click here.

EXCLUSIVE LOOK INSIDE: Citigroup is a holding in Jim Cramer's Action Alerts PLUS charitable trust portfolio. Want to be alerted before Cramer buys or sells the stock? Learn more now.