America First sounds just about right to one corner of Wall Street -- at least when it comes to doing business.
Shares of U.S. independent investment banks have soared since Donald Trump's presidential victory, with Houlihan Lokey Inc. surging to a record on Friday and Evercore Partners Inc. climbing some 18 percent since the Nov. 8 election to a reach an all-time high this week.
In some cases, the firms' gains have eclipsed those of their larger, deposit-rich rivals even though independents aren't in store for the same earnings boost if rates trend higher as expected and financial regulations are eased. But most of these advisory firms have something going for them that helps to justify their rally: a U.S.-centric client base and revenue stream.
If U.S. tax reform leads to a cut in corporate levies, independents will have an advantage over more globally-diversified rivals. Prospects are perhaps the brightest for the likes of Houlihan Lokey, which leads the pack with nearly 90 percent of its revenues earned onshore. Further, if Trump's protectionist sentiments lead to a prolonged pause in cross-border deals, U.S.-focused investment banks will be somewhat insulated from any loss in fees.
Independent banks could also see their advisory revenue spike if U.S. companies are encouraged to repatriate foreign cash under a new tax regime. If companies can finance their own deals from large cash piles, that could mean independents won't be forced to split as many fees with large money center banks such as JPMorgan Chase & Co. and Bank of America Corp., which can be handed advisory roles if they provide financing.
Repatriation would also be positive for firms such as Greenhill & Co., which held $39.4 million of its $55.8 million of cash and cash equivalents balance outside the U.S. at Sept. 30.
Lazard Ltd., which has a larger asset management business than its peers and derives some 34 percent of its revenue from Europe, is now the cheapest of the bunch after lagging behind competitors in the recent rally. Diversification, it seems, can land you in the penalty box these days.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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