The FTSE 100, Dax, and Euro Stoxx 50 were all down between 1% and 1.5% on Monday morning as investors arrived back at their desks after a weekend of escalating tension between the US and Iran.
Many were concerned that the US assassination could lead to a war between the two countries. As a result markets sold off and banks lost a potential opportunity for block trades on Monday night.
ECM bankers bemoaned another hurdle for deals after ending 2019 on a high, with the US trade war seemingly resolved for a time and some political certainty in the UK following the general election.
While markets had calmed somewhat on Tuesday, the incident provided a stark reminder for deal makers this year of Trump’s ability to cause huge spikes in equity volatility, making deal execution in particular a challenge.
These incidents are perhaps even more likely to occur this year than last.
Trump is seeking re-election in November and has also been impeached by the House of Representatives. He is awaiting trial in the Senate and if convicted would be the first president in history to be removed from office.
He is under pressure, meaning his predilection for aggressive, unpredictable decision making is likely to become more pronounced this year.
The growing feud between Iran and the US could still worsen into armed conflict, with severe consequences for Middle East, and perhaps even global, equities.
Trump could also continue to make sweeping unilateral decisions on trade, damaging investor appetite for risk.
Bankers need to take every caution with deals this year, particularly on IPOs which hang around the market for a longer period of time than other ECM products.
Bookrunners should make every effort to pre-sound as many investors as possible and remove unnecessary risk from their transactions before launching them through building shadow books of demand in case of a Trump shock during marketing.
Blocks bankers should also be nimble and not underestimate recent history of severe market reaction to Trump’s decisions and the speed with which he can announce a fundamental shift in US policy on Twitter.
The assassination of Soleimani shows that no matter how good things might look, Trump's presence in the White House means equity markets are never safe.
In the absence of being able to prepare for the unknowable, ECM bankers must continue to defend against unpredictability itself.