Global Finance: You say the US dollar payment system is falling behind other countries. Are we talking about a lag in technology or regulation, or both?

Yesha Yadav: Both. The pandemic sped up the move away from using cash and physical cards to contactless payments. But the underlying technology for moving money from one person’s account to another—that deeper layer on which payments are built—has not changed at all.

The real-time payment scheme for the American people lacks the underlying payment rails. It takes two or three business days for money to move from one person’s account to another. People still use checks all the time and 4.5% of US households do not have a bank account.

It’s policy neglect to not make payments a priority within the larger financial markets reform structure. Each state has its own regulations, and payment services providers must comply with this patchwork of laws. But on a larger level, policymakers have not invested deeply and meaningfully in saying, “We need to have a real-time payment scheme for the entire country where everyone can make really cheap payments to each other superfast and for free, in a way that brings folks into the economy that perhaps weren’t there before.”

The US is falling behind many other countries, including countries you wouldn’t expect. The US dollar payment system has really fallen behind on several measures, and that is creating economic costs for productivity and the capacity of the US dollar to act as strongly as it could as the world’s reserve currency.

GF: Give us an idea of other countries that are doing payments better.

Yadav: Brazil had huge problems doing electronic payments but in 2020 managed to get half its population on Pix [an instant payment platform created by the Bank of Brazil] over two years. Covid-19 stimulus payments were made on Pix. People in the street economy—people playing music on the street or asking for money—are using Pix for the first time and can integrate themselves into the formal economy.

UPI in India is the largest and most active digital payment scheme in the world today. In Thailand, PromptPay has really taken off throughout the economy, again targeting folks that were formerly outside of the economy and underbanked to join and make digital payments. For corporates, that’s a huge advantage because suddenly you have all these people that can make payments to you fast.

GF: How else do these schemes benefit corporates? Are US corporates disadvantaged?

Yadav: Studies show that electronic payments have several advantages for corporates. Businesses don’t have to store as much cash or transport it to and from their banks, which is expensive and requires security. Payments go faster when things are done electronically, so you can have more transactions over a shorter period than you would if folks just pay in cash. Business-to-business (B2B) settlement schemes in real time are next on the horizon; Singapore has a real-time B2B payment scheme. You can pay suppliers extremely quickly and receive money quickly to use for your own cash needs.

In the US, it takes two days or more to get a customer’s money into a business’s account. That’s a problem. We’re talking large sums of money stuck in the ether at the banks, which is not [earning] any interest and cannot be used.

GF: Is it in the interests of the banks to keep the US monetary system the way it is?

Yadav: The impetus to modernize just hasn’t existed. It’s a policy failure, to the extent that there’s no push to say, “You need to do this.” In the EU, the Single Euro Payments Area was born back in 2008 because it was a priority from a policy standpoint. There are ways to overcome these inefficiencies. The clearing house scheme in the US does settle money instantly, but because it costs money and not all the banks are plugged into it, it’s hardly used.

The US is trying to build a new piece of infrastructure, FedNow. The Federal Reserve is proposing a brand-new set of payments rails: real-time payments for the whole of the US. But it is bank-only, so you need a bank account to do it and we’re not clear whether people or businesses that use it must pay for it.

Most importantly, a ton of banks don’t want to join it because they don’t want to deal with verification issues or plugging in their systems, which might be costly. If you take a bank in deepest Nebraska, they’re like, “We don’t really care. We already have this two-to-three days system; we know how it works. We’re not transitioning to this scheme.” [But] if you band together, there is the ability and capacity to move money and settle it in real time, and it’s supercheap to the end user. Look at Faster Payments in the UK or Swish in Sweden.

GF: Are regulators unwilling to speed up change?

Yadav: There is caution, and for good reason because the US system is so systematically essential to the world economy—70% of global trade is in dollars, plus it’s the reserve currency. Realtime payment schemes run the very clear risk of fraud and irreversible errors. If you accidentally add an extra zero to your payment, it goes through instantaneously and the banks might not let you reverse it if it’s settled.

The risk of fraud is higher because banks don’t have time to check whether the payment is from a trusted source. Some security concerns have emerged in Brazil. Faster payment schemes are more prone to fraud, and banks must be willing to take the risk. You see this level of inertia where banks don’t want to take on the risks that come with speedier settlement of transactions.

GF: Can open banking address some of these challenges, and how is it progressing?

Yadav: Open banking is at the forefront of what is happening in banking innovation. It requires certain regulatory and trust mechanisms to be in place to allow banks to share information on customers, use software to verify their digital identity and for that data to be held securely in the cloud. Everyone can see the potential of open banking, but operationally it is slow to be forthcoming. In the US we have too many banks, so the coordination costs are much higher [than elsewhere].

Regulators themselves are not superfast in providing a framework, with respect to thinking through things like cybersecurity standards or API issues. It’s really lagging. It is talked about as an innovation but in the future tense.

GF: Can blockchain play a role in cutting through some of these obstacles?

Yadav: Several countries are experimenting with stablecoins, like Tether, which is used in parts of Asia to move money. These are payment rails run on public blockchains such as Ethereum, which can verify things like your public address and if you’re sending money to someone valid on the blockchain. It’s not going to allow for tracking to see if you’re compliant with know-your-customer laws.

Blockchains as they exist today enable these superfast and efficient stablecoin networks to exist. But the software currently running them doesn’t deal with some of the risks we consider important from a policy perspective, to deter things like money laundering or terrorist financing. We’re seeing the proof-ofconcept, but [as for] integrating that into real-world mechanics, we’re still getting to that next step.

Credit Suisse is being sued for $160 million by Loreley Financing, a subsidiary of German bank IKB, in the UK’s High Court for alleged fraudulent misrepresentation, barely a month after UBS rescued it. In a fresh headache for its new owner, the claim relates to the structuring, arranging, marketing and selling of notes that underpinned a complex transaction based on residential mortgage-backed securities (RMBS). Loreley, based on the Channel island of Jersey, lost its $100 million investment in the notes, which it claims was missold in July 2007.

This credit-crisis legacy issue sits among the raft of allegations of fraud and other misconduct surrounding Credit Suisse’s descent into cultural failure, which UBS management claims it will now be rooting out. UBS negotiated a 9 billion Swiss francs (about $10 billion) loss guarantee from the Swiss government when it took over Credit Suisse, to protect itself from such claims.

Mark Hastings, a partner at commercial-disputes practice Quillon Law, says, “The outcome of this case may well also set a precedent for UBS’ approach to handling the myriad Credit Suisse–related legal claims it is inheriting, and whether UBS will decide to simply settle other legacy claims behind closed doors to avoid further public scrutiny in Switzerland and internationally. Given the outcry following the write-off of $17 billion of Credit Suisse bonds last month, UBS may wish to keep protracted litigation to a minimum for reputational purposes.”

Last year, the Swiss bank paid nearly $500 million to settle similar claims relating to its RMBS business brought by the New Jersey attorney general. A year earlier, it entered into a $600 million settlement with monoline bond insurer MBIA.

In 2017, Credit Suisse paid the US Department of Justice $5.28 billion to settle a five-year investigation into its securitization of RMBS between 2005-2007. Some of its bankers had called the loans they securitized as “complete crap” and “utter complete garbage.”

The DoJ’s investigation prompted Loreley to sue, said its lawyer, Tim Lord KC, at the High Court on April 20. Credit Suisse denies wrongdoing, telling the UK High Court that the lawsuit is a “superficial” recreation of the past.

Experts say it’s only a matter of time before US company accounting rules are ripped up, after Silicon Valley Bank (SVB) and Signature Bank went bust less than two weeks after Big Five auditor KPMG gave both lenders a clean bill of health.

US public companies typically follow generally accepted accounting principles (GAAP), the established financial accounting and reporting standards. But GAAP is under fire for letting companies obscure the actual value on their books.

SVB did not have to recognize losses on its assets if it didn’t sell them. The California bank classified its government-sponsored mortgage bonds as “held to maturity,” which let it exclude unrealized losses on those holdings from its earnings, equity and regulatory capital. It was also sitting on a mountain of long-term government bonds that fell in value as interest rates rose sharply.

But as market whispers fueled further withdrawals, the bank had to find the funds to return depositors’ money. Eventually, SVB sold $21 billion of securities on March 8, incurring a $1.8 billion loss. Nine days later, it filed for bankruptcy.

Since then, S&P Global Market Intelligence discovered that SVB had the most uninsured deposits among US banks with more than $50bn in assets, with Signature Bank in fourth place. But S&P had to comb through regulatory call report filings because GAAP filings exclude certain items, like intercompany deposits, that would paint a more complete picture.

Corporations can expect to see tighter reporting standards, starting with how investments are valued, says Steve Doire, strategic platform and client advisor at Clearwater Analytics. Doire says, “We think the ‘held to maturity’ categorization and how much of a portfolio can be included will be overhauled. At a minimum, we expect more disclosures; and we might even see new financial reports in GAAP statements that specifically calculate asset-liability matching.”

It remains unclear whether the International Financial Reporting Standard (IFRS)—the global accounting standard adopted by around 145 countries—will also be scrutinized. Companies don’t need to recognize unrealized losses for “held to maturity” assets in their financial statements under IFRS, he adds, but the latest iteration does give greater transparency on market fluctuations.

HSBC’s last-minute bargain buy of Silicon Valley Bank’s (SVB) UK arm is being congratulated as a coup, giving the traditional British bank a leg up in the UK’s growing, innovative start-up tech scene.

Following the collapse of Silicon Valley’s largest bank—the biggest bank failure since Washington Mutual folded during the financial crisis—HSBC bought its UK operations for a pound over the weekend.

Market commentators are cautiously optimistic about the deal, which sees HSBC bringing on board over 3,000 customers worth £6.7 billion including Trustpilot, Learning Technologies and SaaS tech firm Zephyr.

“On paper this could be a home run,” according to Simon Taylor, co-founder at consultancy firm 11:FS and a former banker that has helped start-ups grow through the Barclays Accelerator. “But even as a base hit it’s a fantastic outcome in the short term,” he adds.

Maria Rivas, senior vice president, global financial institutions at rating agency DBRS Morningstar, says, “the acquisition… whilst very small, should reinforce the franchise of [HSBC] in the UK in niche areas such as start-up technological companies in the UK, where we see there is significant growth potential.”

HSBC’s track history of bank acquisitions, such as First Direct, shows it can leave a brand alone to operate. This has its downsides.

“My fear is (like First Direct) the product may not evolve. But then, SVB wasn’t the most well known for [its] technology innovation,” Taylor explains. “[Its] strength is its people.”

SVB’s UK staff went to work on Monday as usual; services will continue to operate and customers can continue to bank as usual, said HSBC in its statement. HSBC is predicted to turn a profit on the deal, given SVB UK’s tangible book value of equity is in the ballpark of £1.4 billion and it reported a profit before taxes of £88 million in 2022. 

DBRS Morningstar does not anticipate any difficulties in integrating SVB into HSBC, given its small size and business model as well as HSBC’s long track record of acquisitions.

Rivas expects the acquisition to have a positive impact on profit and loss through a capital gain in the first quarter of the year.

The bank, which is growing its embedded finance business, may be able to attract more fintech firms if it pursues long-term synergies.

“HSBC as a global payments bank has connectivity to many of the international payments rails, making SVB UK an interesting option for UK-based fintech companies. But making these systems work together won’t happen fast, and will take a long time,” Taylor says.

At the very least, the deal opens the door for HSBC to diversify its client base in the UK. Entrepreneur Azeem Azhar, the founder of newsletter Exponential View, first came across SVB in 1996 at a dinner in San Francisco and banked with them a decade ago. He wrote in his newsletter, “It was a specialist catering to a then-small sector that could not be understood by the HSBCs of this world.”

Billions of investor cash is being released this year, triggered by special purpose acquisition companies (SPACs) falling out of fashion.

Just two years ago, SPACs became popular as an easier way for companies to come to market by piggybacking on already-listed companies. And 2021 was a record year for global issuance with investors. Celebrities like Shaquille O’Neal and Alex Rodriguez poured $172 billion into 685 SPACs, according to Dealogic.

But by 2022, the SPAC party screeched to a halt due to a toxic mix of poor performance, regulatory crackdowns, growing litigation and a worsening credit cycle.

The US Securities and Exchange Commission is not a fan of what is effectively an IPO for all intents and purposes but without the traditional disclosure, diligence and regulatory review process. The agency’s new rules, while not yet in force, have already cooled the market. Global issuance last year plummeted to 162 new SPACs that pulled in $16.8 billion — a fraction of the previous year.

The clock is now running down for SPACs that listed in 2021. Once a SPAC is created, the sponsor has two years to find a company to merge with or else it must return all the money to investors. Jason Manketo, partner at law firm Linklaters, says, “Sponsors can typically request a six-month extension from shareholders, but how many get them remains to be seen.”

Billions of dollars are due to flow back to hedge funds and other investors over the course of 2023, he adds. “There’s going to be a huge amount of cash sitting on the sidelines that needs to be deployed, some of which could be directed into IPOs and other equity capital market products.”

Approximately $9.6 billion has been released by 33 SPACs so far this year, as of Feb. 23, with another approximately 300 SPACs are up for liquidation later this year. That would release another $61.8 billion at a time when corporations face tougher financing markets and stricter lenders amid rising rates and inflationary pressures.

“Liquidations began in earnest in the US last year and are expected to accelerate there and in Europe in 2023,” Manketo says.

Nevertheless, some SPAC deals are still going ahead. Chinese-owned electric carmaker Lotus Technology agreed to float in January by merging with a shell company in a $5.4 billion deal.

Global Finance: How global is the “chip war”?

Chris Miller: There are only a small number of countries that participate in the production of advanced semiconductors: the Netherlands, Germany, the UK, the US, Japan, Taiwan and Korea. But there are several countries placing restrictions on China’s access to that technology. Japan has been a driver of this, alongside the United States. The Netherlands has also joined in, so it’s more of a coalition of countries that are trying to restrict China’s access to [advanced] technology so that it’s not used for intelligence and military purposes.

GF: Is a similar battle playing out in other sectors?

Miller: There’s competition in sectors from biotechnology to quantum computing. Semiconductors are unique because of their criticality to intelligence and military systems, but also because they’re widespread throughout the civilian economy—and that makes them complex and tricky to regulate.

Although most chips go to civilian uses like smartphones and PCs, defense and intelligence officials are fixated on the military applications. So long as there’s a dangerous arms race in East Asia between China, Taiwan, Japan and the US, the focus on controlling access to key technologies that are necessary to produce military technology will persist.

GF: What are the potential long-term scenarios?

Miller: It’s a struggle for the future of computing. You can’t train advanced artificial intelligence [AI] systems today without the most advanced semiconductors. The key advanced technologies are controlled by a small number of companies in a small number of countries.

China is certainly going to try to spend a lot of money and focus a lot of its efforts on acquiring some of these capabilities domestically, but the reality is that it’s going to be quite difficult. China’s position in the production process of manufacturing advanced chips today is quite limited. There’s almost nothing that China can do that other countries can’t. There are a lot of capabilities that other countries have that China does not have. We’re not going to know for five or 10 years whether China is succeeding or failing, but it’s far from guaranteed that any country catches up.

GF: You say that the end of Moore’s Law (the exponential increase in the number of transistors per chip) would be devastating for the semiconductor industry—and the world. What does this mean for the corporate world as we know it?

Miller: For the past 60 years, we’ve gotten free increases in computing capabilities every single year. We haven’t had to pay; we’ve gotten discounts. The average price per transistor in the 1960s was many dollars, whereas today it’s a fraction of a cent. This discounted computer power year after year has made possible the application of computing to all sorts of different use cases. Right now, we take for granted that we’re going to be able to apply computing to more use cases year after year, whether it’s agriculture or consumer goods or manufacturing. If this begins to shift and we must start paying for additional computing capabilities, that will have widespread ramifications across the economy and can be dramatic for long-term productivity growth.

GF: How important is it for corporates to keep an eye on the chip war?

Miller: It’s critical. The chip industry is one of the sectors that invest the most, as a share of revenue, in research and development. That has been necessary to keep Moore’s Law going. A lot of other companies in sectors like autos and industrial are beginning not only to buy a lot of chips, but also to think about designing their own chips. They’ve found that if they’ve gotten chips that are specifically designed for their own use cases, they can get better performance, often at lower cost.

There’s a lot of risk in the structure of the chip industry, with immense focus on Taiwan. If there were a loss of access to Taiwan’s chipmaking due to a blockade or a war, the impact on manufacturing would be as dramatic as anything we’ve seen since the Great Depression. It goes far beyond smartphones and PCs­—it’s cars, dishwashers and most manufactured goods. Most corporates have done zero scenario planning and are completely unprepared for how disastrous a loss of access to Taiwan’s chipmaking would be.

Subway, one of the largest fast-food chains, is reportedly for sale at a price of $10 billion or more.

It is suggested that the Connecticut-based franchise, which boasts more than 37,000 restaurants in over 100 countries, could attract large corporate buyers or private equity firms. Restaurant Brands International, the Toronto-based parent company of Burger King, Tim Hortons and Popeyes, had been included in early speculation.

California-based FAT Brands, a global franchise company, is another ambitious corporate buyer that acquires and turns around fast-food chains.

A Subway sale would be the biggest restaurant M&A deal since Inspire Brands bought Dunkin’ for $11.3 billion in 2020. Since then, the financing landscape has changed due to rising interest rates and a slowing economy, which has tightened lending.

Leveraged buyouts are far more costly to pull off these days, which may prove to be a sticking point for interested private equity players.

“Private equity buyers care about franchisee sentiment. If franchisees aren’t satisfied, they won’t add expansion units and will not validate well,” Alicia Miller, co-founder and director of boutique strategic advisory firm Catalyst Insight Group, explains. “So private equity is always keeping a pulse on this as part of their decision about whether to invest in a company. The Subway sale may represent the largest experiment we’ve seen within franchising about what actual power franchisees have, or don’t have, in an M&A transaction involving their system.”

Founded 58 years ago, the home of foot-long sandwiches stayed in its two founding families’ hands for over five decades.

John Chidsey has been CEO since 2019.

The company has also suffered from a series of scandals, including the pedophilia conviction of former longtime spokesman Jared Fogle, who is now in prison; and a lawsuit alleging that Subway’s “100% tuna” is fake—an allegation the company has denied.

Subway did not respond to Global Finance’s request for comment.

Global Finance: Which of the ten mega threats are most relevant to the corporate world in the short to medium term and why?

Nouriel Roubini: The risk of inflation together with recession—stagflation. In the 70s, the global debt-to-GDP ratio was 100%. Today in advanced economies, it is 420% of GDP and rising. My worry is that we’re going to have a very severe debt crisis.

In the last 10 to 15 years there has been a buildup of corporate debt and shadow bank lending to the corporate sector. That buildup of excessive and toxic corporate debt became even more extreme after Covid-19. All the zombie institutions that survived before because we had negative [interest] rates, quantitative easing [and] credit easing, now face rising debt servicing ratios. The dawn of the zombies is over.

Today, we have the worst of the 70s in terms of negative supply shocks—Covid-19’s impact on the economy, Russia’s invasion of Ukraine, China’s zero-Covid policy. I worry that the Great Moderation is over, and the Great Deflationary Debt Crisis and instability is upon us and not just for a year or two, but it’s more of a medium- to long-term phenomenon.

GF: Do we need to let financially distressed companies, banks and people fail?

Roubini: So, usually the Keynesian reaction of backstopping the system (monetary, fiscal, credit easing) is based on the idea of preventing a great recession from becoming a great depression. But on the other side, there are also institutions that are truly illiquid and insolvent, and the Schumpeterian principle of creative destruction has to work. If you don’t allow that creative distruction, you have zombie institutions kept alive and then there is economic inefficiency.

Fine-tuning the balance between the two is an art rather than a science. You have to do triage, otherwise you end up in zombification, like Japan, stagnating with, essentially, deflation and mediocre economic growth for 20 years because they kept zombies alive for too long. Doing it right is complicated.

GF: Are the Fed and other central banks taking the right approach?

Roubini: Central banks are damned if you do and damned if you don’t. They are talking tough [but if] faced with a debt crisis and an economic crisis, they’re going to wimp out. They’re not going to want to [raise rates further], meaning there is a debt trap. It’s a bit like during the Great Financial Crisis people said, “What’s the solution?” The problems had built up for 20 years, and once it happened, we had to go through the mess. Unfortunately, I feel that this time around we’ll have to go through the mess. There is no simple solution to these threats.

GF: What is your sense of whether corporate leaders understand the climate crisis?

Roubini: Every big corporate has a white paper on how they’re going to achieve net zero eventually. Frankly, most of it is greenwashing and “greenwishing”. All of those net-zero plans are a bit of a joke. They’re not really serious. They’re written by their PR or communication departments rather than based on hard choices. It’s very costly in the short run to do the stuff that gets you the net zero.

GF: Do you think Big Tech will lose market leadership under this new scenario?

Roubini: The world is moving in the direction of more digitalization and, after Covid-19, hyper digitalization. That’s why Big Tech firms did very well. Valuation became excessive and that’s why we see the correction of stuff that is more VC-related, especially [those businesses] without any successful business plan. Stuff that is tech-related is hit by rising interest rates because they are long-duration assets, [which] are more sensitive to interest rates than shorter-duration assets. That’s why the Big Tech stocks corrected a lot more than S&P this year. But the future is a future where firms in AI, machine learning, Big Data, 5G, 6G, IoT, cloud, quantum, biotech and tech in general are going to do well. 

GF: If the war in Ukraine ends, to what degree would this resolve the biggest problems? Or are there too many other threats to make much difference?

Roubini: It’s not going to make much difference. Food prices were already spiking before the invasion because you have desertification of lots of parts of the world, and therefore the food supply is limited. Brent was already at $100 a barrel before the invasion. The capacity of renewables has not kept pace with the reduction in capacity in fossil fuels, so we now have a structural supply problem. Paradoxically, dealing with climate change and bashing Big Oil has led now to a spike in fossil fuel prices, regardless of what’s happening in Ukraine.

Many of the problems of geopolitics have to do more with Asia—China, the US and Taiwan. Fifty percent of all semiconductors in the world and 80% of high-end [semiconductors] are produced in Taiwan. So, if there was a confrontation in Taiwan, the shock to the global economy is going to be much bigger than any spike in oil and food prices.

Given the fundamental problems of the world—climate change, geopolitical conflicts outside of Russia/Ukraine, pandemics, the risk from AI, the risk of deglobalization, inflation, stagflation, tech problems, backlash against liberal democracy—Russia’s invasion of Ukraine is just a small footnote, frankly.

GF: The US is investing around $50 billion in domestic chip companies and Taiwan Semiconductors is putting up $40 billion to build a plant in Arizona. Will this make any difference?

Roubini: [New regulations mean that] now any high-end semiconductor with a US design cannot be sold to China, not even the machinery that produces semiconductors. No American citizen or resident can work for a Chinese chip firm. This is a policy of outright containment because of course, whoever controls chips will control AI, machine learning, quantum—you name it. China’s not going to take lightly this attempt at full technological and economic containment. They can counter-sanction in the short run because they produce or process most of the rare-earth metals that are used in electric vehicles. That could be their first response. And they may become more aggressive  towards Taiwan. The head of the US Navy said a few weeks ago that the risk of China doing something in Taiwan could happen before 2024, which means this year. It’s a race on dominating the world both economically and geopolitically.

GF: Given all these looming perils, have you found any reasons to be optimistic?

Roubini: To me, to be optimistic means to accept reality and then do something about changing the world for the better in many small and big ways. If more of us do it, we are going to go in the right direction. Many young people are a little more engaged than other generations and maybe, once they start to get engaged and vote and be politically organized, they can move the needle in the right direction. That’s the hope.

The world and the future depends on whether we have the collective will to address these megathreats before it’s too late. Unfortunately, they are costly to make because of all the political constraints. So we tend to kick the can down the road…hoping that either a miracle or technology are going to resolve [them].

Then there is a more utopian scenario, where a combination of good policies, good leadership, some luck and massive technological innovation allows us to address these threats. But the desirable outcome looks less likely than the dystopian one.

The soaring US dollar has already wreaked havoc with supply chains and profit margins. Next year, it is expected to power a wave of fresh M&A around the globe as US-based corporates and private equity firms seek to leverage this growing power to acquire overseas targets. “Deal-makers are waiting on the sidelines,” says Michael Nicoletos, co-founder of investment firm AppleTree Capital, which focuses on emerging markets.

That’s especially the case in the UK: The dollar was up 20% against the British pound in the fall, company valuations are falling (the FTSE 100 is down 99 points year to date) and the Bank of England has warned that the nation risks the longest recession in 100 years.

“Everything in the UK is on sale,” Blair Jacobson, co-head of European credit at US private equity giant Ares Management, declared at a Financial Times event in mid-October. Blackstone president and COO Jonathan Gray agreed, telling MarketWatch that UK assets are “absolutely” an opportunity for investors.

Moody’s associate managing director Richard Etheridge says, “M&A is going to be driven more by financial markets than whether the dollar has strengthened; but clearly the strengthening dollar over the last few years has led to opportunities in the UK, because [they can be cheaper] than the US home market.”

The dollar also rose against the euro—15% in the early fall. That makes European companies look especially attractive. In September, Northbrook, Illinois-based Idex Corporation recently spent €700 million (about $726 million) on Gelderse Muon, a tech company in the Netherlands. Commenting on the purchase, Scott Adelson, co-president of investment bank Houlihan Lokey, told a Dutch newspaper that, going forward, more companies like Porsche will be taken private rather than added to stock exchanges, following a lackluster year for initial public offerings.

The inexorable rise of the dollar against a string of currencies (the US Dollar Index recently hit a 20-year high) is opening plenty of M&A opportunities in other corners of the globe as well. For some non-US companies, an expensive dollar is an expensive problem: Their revenue is in their local currency, but they need to pay down their debt in dollars. The Institute of International Finance says that global debt surpassed $300 trillion in 2021. Nearly 80% of world trade is conducted in dollars, according to Swift; and according to the Bank for International Settlements, 84% of all nondomestic debt globally is in dollars.

“Emerging market currencies have been crushed this year and suddenly inflation is through the roof, as much as 80%,” Nicoletos says. “The magnitude of the damage is huge.”

After the Asian financial crisis, US-based companies snapped up strategic partners or counterparts in Thailand and South Korea, for example, on the cheap. Today, Asian countries are experiencing a debt-burden déjà vu. Sri Lanka defaulted on its debt in May; and Pakistan came close to defaulting before striking a $1.17 billion deal with the International Monetary Fund, approved in August.

“There’s a point where companies need to refinance, but can’t under the rates they were used to; and that’s where distressed funds come in and pick up these names,” Nicoletos says. “I don’t think we’re there yet. I think during the second half of next year, we’re going to see things picking up.”

Deal activity is ramping up now in Japan, where the dollar soared around 27% against the yen in September, a 24-year low for the Asian currency. US-based private equity firms funneled $11.26 billion into Japan for the year as of Sept. 12. That’s a 15% increase on the $9.54 billion invested for all of 2021, according to data compiled by S&P Global Market Intelligence.

Bain Capital recently snapped up Tokyo-listed Net Marketing for ¥13.6 billion (about $97 billion), and Kohlberg Kravis Roberts & Co. got Hitachi Transport System for about $5 billion. US-backed private equity firms will “likely remain keen to search for Japanese businesses for a potential acquisition,” given the “soaring value” of the dollar against the Japanese yen and lower stock prices in Japan, S&P analysts note.

Latin America is also attractive. American companies that typically used manufacturers in China are increasingly turning closer to home. This has been promoted by factors including the pandemic, strained supply chains, the lingering US-China trade war and rising wages in China. Dearborn, Michigan–based carmaker Ford and Arlington, Virginia–based aerospace manufacturer Boeing are among those that have “nearshored” more of their operations to Latin America and the Caribbean.

Mexico, which Bank of America analysts recently named the No. 1 choice for US corporates, has seen its manufacturing industry grow 5% this year. It’s now bigger than before the pandemic, while average labor costs are now lower than in China.

“We see some cracks in globalization,” Nicoletos says. “We’re going from globalization to regionalization, which means that [businesses] will want to keep supply chains closer to home.”

Battered by headwinds, in November London temporarily lost its title as Europe’s biggest stock market since record-keeping began, to Paris.

Figures from Bloomberg released Nov. 14 showed British shares worth around $2.821 trillion, and French shares edging past them at $2.823 trillion. Market capitalization figures partially reflect currency movements—the pound dropped 13% against the dollar while the euro held firmer, and Paris’ fortunes waxed as London’s waned. 

The London Stock Exchange (LSE) was worth about $1.4 trillion more than its Parisian rival in 2016, but its fortunes declined after Brexit. Since June 2016, Paris’ CAC 40 index shot up 47% while the FTSE 100 crept up just 16%. Last year, Amsterdam overtook London as Europe’s largest financial trading center based on the total value of traded shares.

Today, British listed companies are struggling as consumer confidence tumbles in the face of the UK’s long-anticipated recession. Share prices of blue-chip names like food retailer Ocado Group and JD Sports Fashion tanked this year by over 40%, a weaker pound adding to the burden on companies already battling double-digit inflation in imports.

Foreign buyers also shrank the LSE, snapping up billions of pounds worth of UK-listed companies at a steal. Asset manager Schroders noted earlier this year that “a third of the major companies on the UK stock market a decade ago have since vanished, with more than half going to overseas buyers.”

Recent attempts to shake up the UK’s listing regime have yet to win any new stock market darlings. France, meanwhile, has flourished. A resurgence in Chinese demand for luxury goods in the six months to mid-November boosted the likes of LVMH—Louis Vuitton’s owner—and Hermes’ share price by 22% and 37%, respectively.

To be sure, France’s stellar stock run slowed in November; and this, combined with a bounceback by the pound helped London recover its crown as Europe’s largest stock market. A new government has unwound much of the previous government’s much-criticized financial plans, and the pound is now trading around 12% higher as of November versus a month ago. Still, the UK remains the only G7 nation with a smaller economy than before the pandemic.