According to Bloomberg, US companies are expected to repatriate about $1.5 trillion thanks to the new tax laws that were passed in December last year. Of this amount, about $400 billion has already come back into the country.
Asset managers in the country are competing against each other to win a piece of this cash comeback. Competition is cutthroat with a lot on the line for these firms. The first casualty of this war is Deutsche Bank AG’s asset management division, the DWS Group.
Cisco Systems Inc. withdrew €5 billion (~$5.7 billion) from DWS Group recently as a part of its repatriation plan to bring back profits to the US. This loss totaled up to 40% of Deutsche Bank’s half yearly outflows.
This withdrawal by Cisco just goes to highlight the intense pressure that asset management firms are facing as they try and capitalize on Trump successful bid to radically change corporate tax rates. This bid, however has been criticized by many has a deceptive tactic to benefit corporates that are already sitting on huge caches of cash.
According to the new law put in motion by Trumps administration, there is a one-time repatriation rate of 15.5% on untaxed cash and liquid assets held abroad, and a one-time 8% repatriation rate on untaxed non-cash as well as non-liquid assets. This new law allows companies to pay this amount over a period of 8 years.
The previous tax laws simply levied 35% corporate taxes on any amount that was being repatriated back into the country, because of which most corporates preferred to leave their assets where they were.
Despite the fact that it has already been more than six months since this law was passed, companies have been slow to react to the changes. However, asset managers have not been so slow in making changes to take advantage of the new tax laws.
JP Morgan Chase and Co., BlackRock Inc. and Fidelity Investments have all been racing to develop new strategies and offerings for clients that were bringing money back to the country. These offerings range from investments options to how their clients can spend that cash.
According to the Chief Executive Officer of BNP Paribas’ US division, Jean-Yves Fillion stated that a large number of US companies have a significant amount of cash in foreign countries, and this is window of opportunity for them to repatriate that money.
Fillion stated that BNP had just vamped up its transatlantic team that helps multinational companies with their financial strategies and raising capital. The team also helps these companies repatriate cash held overseas back to the US.
Fidelity is also creating new strategies. According to the head of liquidity management solutions, Michael Morin, the company is helping its clients look at various alternatives such as paying off debts, investing in projects, repurchasing shares or even meeting dividend payments.
BlackRock has also developed strategies to help its clients use their repatriated money wisely. The world’s biggest asset manager has already made several deals to increase its clientele in its cash management division.
Goldman Sachs Asset Management’s managing director said that they were investing in technology to offer a wider range of solutions for their clients. According him, in recent years, American companies have preferred to go into the debt market in the US while maintaining large stashes of cash in foreign countries since the corporate tax laws at that time were not favorable for repatriation.
JP Morgan Asset Management’s global head of client portfolio management Ted Ufferfilge said that their company was offering help to their clients as they reassessed their capital structure and looking at financing their operations via various funds.