Economy

One scoop to start: Activist hedge fund Elliott Management is increasing the pressure on oil refiner Phillips 66, kick-starting a proxy battle calling for “sweeping changes” at the US energy conglomerate.Another scoop to start: President Donald Trump has suggested he could cut tariffs on Chinese goods if Beijing allows ByteDance, the Chinese owner of TikTok, to divest the hugely popular video sharing app to avoid a ban in the US.Welcome to Due Diligence, your briefing on dealmaking, private equity and corporate finance. This article is an on-site version of the newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday to Friday. Standard subscribers can upgrade to Premium here, or explore all FT newsletters. Get in touch with us anytime: Due.Diligence@ft.comIn today’s newsletter: Wall Street’s big tariff painMarket turmoil derails Vista dealPlaid’s valuation takes a hitTrump’s tariffs rattle Wall StreetIn early 2025, Bill Ackman converted a stock position of over $1.4bn in footwear giant Nike into call options.The billionaire investor had proclaimed President Donald Trump’s return to the White House as the most “pro-business” and “pro-growth” administration in decades.But the Pershing Square founder nonetheless used the trade to take money off the table on a footwear brand that was exposed to Trump’s planned tariffs.US markets on Thursday plunged after the president unveiled the largest tariffs in about a century. Stocks fell the most since the early days of the coronavirus pandemic when the global economy was shuttered.Ackman had not hedged his $16bn portfolio ahead of Trump’s announcement unlike in the early stages of the pandemic. He is now among legions of Trump supporting Wall Street luminaries who have seen their portfolios pummeled due to the tariffs announcement.Thursday’s market sell-off was a long way from how attendees of the World Economic Forum’s conference at Davos anticipated this year would unfold.Scores of billionaire investors and corporate titans predicted at the Swiss winter resort that the world would soon be subsumed by American exceptionalism. But they were wrong. Trump’s promise to unleash economically destructive tariffs has done just that. The tariffs announcement, branded “liberation day” by the White House, has caused deep pain across Wall Street.Shares in some of the world’s biggest private capital groups were hammered. Apollo Global Management fell nearly 13 per cent while KKR plummeted more than 15 per cent. Blackstone’s stock fell nearly 10 per cent. The risks of inflation, a recession and freezing deal markets threaten to cause the private equity machine to stall anew after years of lacklustre activity and performance. Meanwhile, groups that had boomed during the private credit wave — like Ares Management and Blue Owl — also suffered as investors recalibrated growth expectations. Some dealmakers said rising loan defaults were on the horizon. The trading day was a painful reversal for the legions of financiers who had hyped up Trump’s second term in the White House as a business-friendly era that would turbocharge economic growth.Some now think the economic picture looks positively dire.Robert Koenigsberger, founder of emerging market-focused investment firm Gramercy Funds Management said the deluge of tariffs “increases the risk of a recession and materially increases the risk of stagflation”.Yet there are some investors out there who have de-risked enough that they’ve made some money — or at least haven’t lost a ton. One of them is the Oracle of Omaha.Warren Buffett’s Berkshire Hathaway barely traded down, slipping just over 1 per cent. He spent the past year dramatically cutting his exposure to equities such as Apple, and shifting into short-term Treasury bills. Apple shares fell more than 9 per cent on Thursday.A jumbo private credit refinancing gets spikedVista Equity Partners was able to celebrate earlier this year when it refinanced some high-cost private credit debt on a portfolio company.The leveraged buyout shop was hoping to catch lightning twice. But turbulence in financial markets as Trump ratcheted up his trade war has snarled Vista’s latest attempt.The private equity group has shelved plans to refinance or pay off nearly $6bn of debt and preferred equity of portfolio company Finastra, the highly leveraged financial data company it owns.The deal would have allowed Vista to refinance a $4.8bn private credit loan — which at the end of 2024 carried an 11.7 per cent interest rate — and recoup $1bn of its own money that it was forced to pump into Finastra in 2023 to obtain that private credit loan.Finastra’s private credit loan is one of the largest outstanding and Vista’s push to secure the debt in 2024 became a flashpoint in markets. Lenders were only willing to extend credit if Vista invested its own money into the business.Vista was forced to borrow against the value of one of its flagship funds to raise the cash, turning to a so-called net asset value loan. It was a novel financial manoeuvre and captivated the industry.That’s why when markets rallied earlier this year, Vista dialled up its bankers at Morgan Stanley to try to rework the deal. The bank was successful in raising $2.5bn in the loan markets to refinance private credit debt for another Vista-backed company, known as Avalara.But their efforts misfired for Finastra. Bankers initially pitched a $5.1bn senior loan with an interest rate just 3.75 percentage points above the floating rate benchmark, which would have yielded more than 8 per cent. They were willing to offer larger discounts and coupon payments on a $1bn junior loan, which Vista planned to use to redeem its preferred equity. As market volatility jumped, would-be buyers shied away and sources told DD’s Eric Platt and the FT’s Will Schmitt that the bank went pencils down. One banker who followed the Finastra deal said​ that after the balance of power favoured syndicated markets for the past half year​, “we’re going to see a pendulum swing back towards the private credit market​.”Plaid’s valuation halves on new funding roundRewind just a few years to 2021: interest rates were at rock bottom and in the era of easy money, investors threw cash at start-ups without a second thought.Fintech founders thrived in this environment, building flashy tech outfits in the previously staid business of banking. Valuation multiples soared, and money poured in. At its peak in 2021, fintechs received more than $121bn from venture capital funds. Last year, that figure was just $29.5bn. But the mood music has now changed. Investors have withdrawn their wallets as interest rates have risen and fintech valuations are taking a hiding.US-based Plaid is the latest victim of the high rate environment. The fintech, which helps consumers link their bank accounts to other websites and apps, announced on Thursday that it had its valuation slashed in half in its most recent funding round. Investors including BlackRock, Fidelity and Franklin Templeton put $575mn into the business, valuing Plaid at $6.1bn — less than half the $13bn it was worth when it last raised funds in 2021.Plaid’s chief executive Zach Perret was candid when speaking to the FT. He said the company’s last fundraising round coincided with “the peak of the market” and added that since then, “tech multiples have massively compressed”.Even still, some of the largest fintechs have increased their valuations recently. Revolut became Europe’s most valuable start-up last year with a $45bn valuation. It signals companies in the lossmaking open banking sector — which relies on data-sharing technology — haven’t picked up in the same way. Job movesKlaus Schwab, the founder of the World Economic Forum, will “start the process” of stepping down as chair of its board of trustees, weeks after the organisation promised an overhaul after an investigation into workplace discrimination.Goldman Sachs has named Heiko Weber and Trent Wilkins as co-heads of the bank’s real estate group in Emea. Weber previously focused on various real estate markets throughout Europe, while Wilkins was co-head of corporate investment grade origination in Emea.Morgan Stanley has hired Jon Swope and Mark Filenbaum as managing directors for the bank’s healthcare investment banking group, Bloomberg reports. Swope previously worked for Barclays, while Filenbaum previously worked at UBS.Kirkland & Ellis has hired Susan Burkhardt as a partner in the firm’s investment funds practice, where she’ll focus on credit funds. She previously worked for Clifford Chance. Smart readsBling, bags, booze US consumers are likely to be hit by the price rises across sectors from aviation to cars, the FT reports. Find out which goods will be hit first — and the hardest.Reverse course Meet the lawyer who helped Trump’s in-laws, the Kushners, crack down on poor tenants, and who now helps renters fight big landlords, ProPublica writes. Cost analysis Is college still worth it economically? Yes, Bloomberg writes — but who it benefits the most shifts constantly. News round-upApple loses more than $300bn in market value from Trump tariff hit (FT)Donald Trump’s sweeping tariffs ignite $2.5tn rout on Wall Street (FT)Fitch downgrades China’s sovereign debt over spending and tariffs (FT)Deloitte seeks to avoid liability over US nuclear fiasco (FT)Oil slides as Opec+ lifts output and tariffs spark global growth fears (FT)Due Diligence is written by Arash Massoudi, Ivan Levingston, Ortenca Aliaj, and Robert Smith in London, James Fontanella-Khan, Sujeet Indap, Eric Platt, Antoine Gara, Amelia Pollard and Maria Heeter in New York, Kaye Wiggins in Hong Kong, George Hammond and Tabby Kinder in San Francisco. Please send feedback to due.diligence@ft.comRecommended newsletters for youIndia Business Briefing — The Indian professional’s must-read on business and policy in the world’s fastest-growing large economy. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDistil grain anywhere on the island of Ireland and you can call it Irish whiskey. But under Donald Trump’s tariffs, the spirits made north of the border might get an advantage.The US president has imposed a 10 per cent tariff on UK exports but 20 per cent on the EU, suggesting that whiskey sold into America from Northern Ireland will face a lower duty than that from the Republic.However, as with many agrifood products, ingredients can be sourced on one side of the Irish border and processed on the other. This potentially complicates the tariff picture for an industry worth $1.1bn in revenue in the US if goods made with inputs from the Republic of Ireland are deemed to be of EU origin.“We’re not 100 per cent sure what’s happening,” said Peter Lavery, director of Titanic Distilleries, a Belfast-based newcomer to the industry which recently announced plans to expand sales in the US.Better-known Irish whiskey brands include Jameson in the Republic and Bushmills in Northern Ireland, but it is a growing industry with more than 40 distilleries now scattered across the island. The Irish whiskey Association says nearly 4.7mn, nine-litre cases of Irish whiskey were sold in the US in 2003. Whiskey produced fully in Northern Ireland, casked there and left for three years to mature is classified as a Northern Irish product, producers say. However, many of the younger whiskey businesses in Northern Ireland buy the young product from the Republic before ageing and bottling it north of the border. “Beyond the headline rates, we don’t know which [tariff] applies,” said one industry figure. Lavery says Titanic buys from both the North and the Republic.John Kelly, McConnell’s Irish Whiskey chief, said the industry was working with the IWA and Spirits Europe “to get clarity . . . as quickly as possible”.Exports from Northern Ireland are counted as UK exports but officials say whether or not EU content sourced in the Republic of Ireland would incur the EU tariff depends on how the US determines rules of origin.“We will always act in the best interests of all UK businesses. This of course includes those in Northern Ireland which is a part of the UK customs territory and internal market,” said a UK government spokesperson. The EU is evaluating how to respond but Trump has already said he will hit back with a 200 per cent tariff on European alcohol if Europe puts counter-tariffs on US whiskey. Adrian McLaughlin, who has developed two Northern Irish whiskey brands, Outwalker and Limavady, and is this month opening the island’s first “whiskey hotel” in a 19th-century property that belonged to Winston Churchill, said tariffs could drive US bourbon prices higher too.As tariffs push up the price of Irish whiskey, “What does Bourbon do? Does Bourbon sit and retain its competitive advantage? Or does it say hold on — there’s a margin opportunity here, we’ll put our pricing up,” he said.Eoin Ó Catháin, director of the Irish whiskey Association which covers producers across the island, said engagement with the Irish government and EU continued in the hope of returning “to the reciprocal, zero-for-zero tariff environment which brought us such success”.If the tariff differential between the UK and EU remained “it’s a huge advantage” but “we are obviously preparing for the worst,” Lavery said.Irish Distillers, which owns Jameson and other Irish brands, declined to comment. Bushmills, owned by Mexico’s Becle, did not immediately respond.Irish whiskey is one of the world’s fastest-growing categories of spirit. US consumption is expected to grow by 2 per cent in volume in 2023-28, according to IWSR, an alcohol data provider.“This is not the end of the world,” said McLaughlin. “We’ll work it out.” More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe cost of flying goods to the US has surged as businesses rush to get products into the country before they are hit by US President Donald Trump’s sweeping tariffs.Exporters, from drugmakers to tech hardware manufacturers, have been paying almost 40 per cent more to fly goods into the US from China than they were four weeks ago. Some will continue to pay a premium to import goods by air before Trump’s latest round of tariffs are enforced in the coming days, freight executives said.But they added that the market was also bracing for a “seismic shock”, after Washington pledged to remove an exemption that excludes smaller shipments from tariffs and rigorous customs checks and has in recent years helped drive huge growth in air freight demand from Chinese online retailers.The average cost of flying cargo from China to the US at short notice rose 37 per cent to $4.14 per kg between the first and last weeks of March, after having fallen steadily since the peak Christmas shopping period, according to the most recent data from market tracker Xeneta.The average cost of sending goods by air from Europe to the US rose 7 per cent to $2.61 over the same period.The growing demand for air freight, which is faster but pricier than shipping by sea, is the latest example of businesses taking expensive measures to minimise their exposure to Trump’s even costlier tariffs.Freight executives have warned that higher costs caused by Trump’s actions will probably be passed on to consumers.China-US air cargo spot rates are still lower than levels reached a year ago, when high volumes of exports from Chinese retailers and the Houthi militant group’s attacks on ships in the Red Sea were driving significant growth in air transport.On what the president has dubbed “liberation day”, he on Wednesday announced new levies starting at 10 per cent on all US imports. For Chinese imports, Trump added a 34 per cent tariff on top of a 20 per cent charge imposed earlier this year.Ahead of his announcement, “lots of companies were trying to push in more products by air than they normally would, especially over the last three weeks”, said an executive at one of the biggest global logistics groups.This included producers of high-cost goods such as European pharmaceutical companies and Asian manufacturers of data centre equipment, he added.On Thursday, Danish shipowner and logistics group AP Møller-Maersk said it was still expecting “to see some rush airfreight orders in the US ahead of the announced tariffs going into effect”. Washington has said that its basic 10 per cent tariff will take effect on April 5, before higher taxes are enforced on April 9.But freight handlers that are benefiting from this rush are preparing for a subsequent decline in demand from China, after Washington announced on Wednesday that its “de minimis” duty exemption for goods under $800 will be lifted once “adequate systems are in place” to collect additional taxes.The exemption has long been used by retailers such as Shein and Temu to fly goods cheaply from China to their growing US customer base, boosting airlines and freight plane operators.“In my 30 years working in the air freight industry, I cannot remember any other unilateral trade policy decision with the potential to have such a profound impact on the market,” said Niall van de Wouw, chief air freight officer at Xeneta.“Ecommerce has been the main driver behind air cargo demand. If you suddenly and dramatically remove the oxygen from that demand, it will cause a seismic shock.” More

Your browser does not support playing this file but you can still More

Now that President Donald Trump has set out his landmark tariff plans, the Federal Reserve finds itself in a potential policy box.
The central bank is tasked with full employment and low prices. If tariffs challenge both, choosing whether to ease to support growth or tighten to fight inflation won’t be easy.
The general consensus is that unless the duties are negotiated lower, they will take growth down to near zero or perhaps even into recession, while putting core inflation in 2025 north of 3%.

U.S. Federal Reserve Chair Jerome Powell and U.S. President Donald Trump.
Craig Hudson | Evelyn Hockstein | Reuters

Now that President Donald Trump has set out his landmark tariff plans, the Federal Reserve finds itself in a potential policy box, having to choose between fighting inflation, boosting growth — or simply avoiding the fray and letting events take their course without intervention.
Should the president hold fast to his tougher-than-expected trade policy, there’s a material risk of at least near-term costs, namely the potential for higher prices and a slowdown in growth that could turn into a recession.

For the Fed, that presents a potential no-win situation.
The central bank is tasked with using its policy levers to ensure full employment and low prices, the so-called dual mandate of which policymakers speak. If tariffs present challenges to both, choosing whether to ease to support growth or to tighten to fight inflation won’t be easy, as each courts its own peril.
“The problem for the Fed is that they’re going to have to be very reactive,” said Jonathan Pingle, chief U.S. economist at UBS. “They’re going to be watching prices rise, which might make them hesitant to respond to any growth weakness that materializes. I think it’s certainly going to make it very hard for them to be preemptive.”
Under normal conditions, the Fed likes to get ahead of things.
If it sees leading gauges of unemployment perk up, the Fed will cut interest rates to ease financial conditions and give companies more incentive to hire. If it sniffs out a coming rise in inflation, it can raise rates to dampen demand and bring down prices.

So what happens when both things occur at the same time?

Risks to waiting

The Fed hasn’t had to answer that question since the early 1980s, when then-Chair Paul Volcker, faced with such stagflation, chose to uphold the inflation side of the mandate and hike rates dramatically, tilting the economy into a recession.
In the current case, the choice will be tough, particularly coming on the heels of how the Jerome Powell-led central bank was flat-footed when prices started rising in 2021 and he and his colleagues dismissed the move as “transitory.” The word has been resurrected to describe the Fed’s general view on tariff-induced price increases.
“They do risk getting caught offsides with the potential magnitude of this kind of price increase, not unlike what happened in 2022, where they might feel the need to respond,” Pingle said. “In order for them to respond to weakening growth, they’re really going to have to wait until the growth does weaken and makes the case for them to move.”
The Trump administration sees the tariffs as pro-growth and anti-inflation, though officials have acknowledged the potential for some bumpiness ahead.
“It’s time to change the rules and make the rules be stacked fairly with the United States of America,” Commerce Secretary Howard Lutnick told CNBC in an interview Thursday. “We need to stop supporting the rest of the world and start supporting American workers.”
However, that could take some time, as even Lutnick acknowledged that the administration is seeking a “re-ordering” of the global economic landscape.
Like many other Wall Street economists, Pingle spent the time since Trump announced the new tariffs Wednesday adapting forecasts for the potential impact.

Bracing for inflation and flat growth

The general consensus is that unless the duties are negotiated lower, they will take prospects for economic growth down to near zero or perhaps even into recession, while putting core inflation in 2025 north of 3% and, according to some forecasts, as high as 5%. With the Fed targeting inflation at 2%, that’s a wide miss for its own policy objective.
“With price stability still not fully achieved, and tariffs threatening to push prices higher, policymakers may not be able to provide as much monetary support as the growth picture requires, and could even bind them from cutting rates at all,” wrote Seema Shah, chief global strategist at Principal Asset Management.
Traders, however, ramped up their bets that the Fed will act to boost growth rather than fight inflation.
As is often the reaction during a market wipeout like Thursday’s, the market raised the implied odds that the Fed will cut aggressively this year, going so far as to put the equivalent of four quarter-percentage-point reductions in play, according to the CME Group’s FedWatch tracker of futures pricing.
Shah, however, noted that “the path to easing has become narrower and more uncertain.”
Fed officials certainly haven’t provided any fodder for the notion of rate cuts anytime soon.
In a speech Thursday, Vice Chair Philip Jefferson stuck to the Fed’s recent script, insisting “there is no need to be in a hurry to make further policy rate adjustments. The current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”
Taking the cautious tone a step further, Governor Adriana Kugler said Wednesday afternoon — at the same time Trump was delivering his tariff presentation in the Rose Garden — that she expects the Fed to stay put until things clear up.
“I will support maintaining the current policy rate for as long as these upside risks to inflation continue, while economic activity and employment remain stable,” Kugler said, adding she “strongly supported” the decision in March to keep the Fed’s benchmark rate unchanged.
Get Your Ticket to Pro LIVE
Join us at the New York Stock Exchange!
Uncertain markets? Gain an edge with CNBC Pro LIVE, an exclusive, inaugural event at the historic New York Stock Exchange.
In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12.
Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited! More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldPresident Donald Trump has suggested he could cut tariffs on Chinese goods if Beijing allows ByteDance, the Chinese owner of TikTok, to divest the hugely popular video sharing app to avoid a ban in the US.“We have a situation with TikTok where China will probably say we’ll approve a deal, but will you do something on the tariffs,” Trump said aboard Air Force One. “The tariffs give us great power to negotiate.”The comments came one day after Trump imposed “reciprocal” tariffs on dozens of nations, including a 34 per cent levy on imports from China that followed the 20 per cent tariff he imposed earlier this year.Trump also said his administration was “very close” to reaching a deal with “multiple investors” that would allow TikTok to continue to operate in the US. Congress last year passed legislation requiring ByteDance to divest the app or face a nationwide ban. Trump extended the deadline for divestment until Saturday.Lawmakers passed the legislation to address security concerns about possible Chinese government influence over TikTok’s algorithm. Security officials are also concerned that ByteDance’s ownership of TikTok would enable Beijing to obtain the personal data of millions of Americans.Show video info“We’re very close to a deal with a very good group of people,” Trump said. Earlier on Thursday, vice-president JD Vance told Fox News the deal would “come out before the deadline”.The White House this week held talks to thrash out the contours of a deal that would be palatable to Republicans, as well as ByteDance and the Chinese government, which would need to give its blessing. The administration has been weighing a proposal to spin off TikTok from its Chinese parent. It would create a new US entity and include fresh American investment to dilute the ownership stakes of Chinese investors, according to multiple people familiar with the matter. Under the proposal, new outside investors, including Andreessen Horowitz, Blackstone, Silver Lake and other big private capital firms, would own about half of TikTok’s US business, the people said. Large existing investors in TikTok, including General Atlantic, Susquehanna, KKR and Coatue, would hold 30 per cent of the US entity, while ByteDance would keep a stake at just below 20 per cent. This would adhere to requirements in the US law that no more than a fifth of the company be controlled by a “foreign adversary”. Oracle, meanwhile, would provide data security to the company. But one big flashpoint is who would control TikTok’s highly sought-after algorithm. One option under discussion was that ByteDance would continue to develop and operate the algorithm — which has been a central demand of the Chinese government — while the new US group could access it through a licensing agreement, the people said. However, China hawks and legal academics have argued that the algorithm needs to be fully operated by the US entity to meet the requirements of the legislation. Several members of the Trump administration, including secretary of state Marco Rubio and national security adviser Mike Waltz, were vocal opponents of allowing China to retain control of the app when they served in Congress.The Chinese embassy in Washington did not respond to a request for comment. A ByteDance representative did not immediately respond to a request for comment. More