This years Schulte Roth Zabel’s (SRZ) 19th Annual Private Investment Funds Seminar stuck a very different pose from last years event. One year on from the global meltdown of financial markets, languishing institutional certainty and the pervading crisis of industry confidence has been replaced with a cautious optimism. The bold swagger of the industry however is gone, in its place a more certain sense of direction and expectation is emerging. Though managers continue to labor under unachievable high water marks due to the 2008 market devastation, 2009 marked a year of exceptional performance. Investment portfolios rebounded in line with the upturn in the equity and bond markets. Liquidity improved and net inflows into the industry has turned positive during the last quarter as large institutional investors and sovereign wealth funds returned to the sector with generous allocations. These are taken as clear signs that the industry has stabilized and the path to recovery and the healing of economic and psychological wounds are underway. Yes the industry will survive and ultimately thrive again but it will do so under vastly different conditions. The new business landscape will require an industry with a guarded culture of opaqueness to provide much greater transparency while operating under a regimen of greater regulatory scrutiny.
The 1,900 registered attendees heard a message about an industry at a cross road still coming to terms with the market cataclysm brought on by unfettered, unregulated markets and excessive risk taking. SRZ offered an honest assessment in examining the industries role in the market turmoil. Speakers alerted attendees to an industry at a tipping point. To survive the industry must adapt to a converging world that believes that uniform market rules and regulations are the surest safeguards against catastrophic systemic risk events. A global political consensus is emerging that expresses support for industry regulation as an effective tool to mitigate the pervasiveness of fraud and market manipulation that undermines investor confidence and ultimately the functioning of a fair and efficient open free market.
Paul Roth, Founding Partner of SRZ, noted in the events opening remarks that the market is beginning to recover as evidenced by industry AUM once again exceeding the $2 trillion mark; but he warned that any exuberance needs to be tempered with the understanding that the new normal would not resemble the pre-crash world. The days of cowboy capitalism and radical laissez-faire investing are clearly over. Indeed Mr. Roth wryly observed “the industry must develop a maturity about the need for change. He concluded “that the industry must respond by playing a constructive role in forming that change.”
The conference subject matter, speakers and materials were all top shelf. Break out presentations on risk management, regulatory compliance, distressed debt deal structuring, tax strategies and compensation issues all reinforced the overriding theme of an industry in flux. The presenters passionately advocated the need to intentionally engage the issues to confront accelerated changes in market conditions. By doing so, fund complexes will be in a position to better manage the profound impact these changes will have on their business and operating culture. Subject issues like insider trading, tax efficient structuring, hedge fund registration, preparing for SEC examinations and the thrust of DOJ litigation initiatives and how to respond to subpoenas were some of the topics explored.
To highlight the emerging regulatory environment confronting the industry, a presenter pointed to the Southerization of the SEC. This is an allusion to the hiring of former criminal prosecutors from the Department of Justice, Southern District of New York to go after wayward fund managers. The SEC is ramping up its organizational capability to effectively prosecute any violations of the new regulatory codes. The growing specter of criminal prosecutions and the growing web of indictments concerning the high profile case of Mr. Raj Rajaratnam of the Galleon Group was presented as evidence of an emerging aggressive enforcement posture being pursued by regulators. Managers beware!
Presenters made some excellent points about how institutional investors are demanding greater levels of TLC from their hedge fund managers. This TLC stands for transparency, liquidity and control. Creating an operational infrastructure and business culture that can accommodate these demands by institutional investors will strengthen the fund complex and help it to attract capital during the difficult market cycle.
The evening concluded with an interesting and honest conversation between Paul Roth and Thomas Steyer, the Senior Managing Partner of Farallon Capital Management. The conversation included increased regulatory oversight, compensation issues, industry direction and matching investor liquidity with fund strategy, capacity, structure and scale. Mr. Steyer manages a multi-strategy fund complex with $20 billion AUM, his insights are borne from a rich industry experience. He made the startling admission that Farallon has been a registered hedge fund for many years and he believes that the regulatory oversight and preparation for examiners reviews helped his fund management company to develop operational discipline informed by sound practices.
Mr. Steyer also spoke about scale and that additional regulatory oversight will add expense to the cost of doing business. Mr. Steyer believes that it will become increasingly difficult for smaller hedge funds to operate and compete under these market conditions.
Another interesting topic Mr. Steyer addressed were issues surrounding investor redemption and fund liquidity. During last years SRZ conference investor liquidity was the hot topic. Fund preservation during a period of market illiquidity and a fair and orderly liquidation of an investment partnership were major themes that ran through last years presentations. Mr. Steyer struck a more conciliatory tone of investor accommodation. He confessed his dislike for the use of “gates” as a way to control the exit of capital from a fund. In its place he offered a new fund structure he referred to as a “strip” to allocate portfolio positions to redeeming partners in proportion to the overall funds liquid and illiquid positions. He stated he believed that strategy to be more investor friendly.
Schulte Roth & Zabel has once again demonstrated its market leadership and foresight to an industry clearly in flux, confronting multiple challenges. These challenges will force fund managers to transform their operating culture in response to the sweeping demands of global market pressures, political impetus for regulatory reform and the heightened expectations of increasingly sophisticated investors. The industry could not have a more capable hand at the helm to help it navigate through the jagged rocks and shifting shoals endemic to the alternative investment management marketplace.
You Tube Music Video: Beach Boys, Sail On Sailor
Risk: industry, market, regulatory, political
The severity of the banking crisis is evident in the 95 banks the FDIC has closed during 2009. The inordinate amount of bank failures has placed a significant strain on the FDIC insurance fund. The FDIC insurance fund protects bank customers from losing their deposits when the FDIC closes an insolvent bank.
The depletion of the FDIC Insurance fund is accelerating at an alarming rate. At the close of the first quarter, the FDIC bank rescue fund had a balance of $13 billion. Since that time three major bank failures, BankUnited Financial Corp, Colonial BancGroup and Guaranty Financial Group depleted the fund by almost $11 billion. In addition to these three large failures over 50 banks have been closed during the past six months. Total assets in the fund are at its lowest level since the close of the S&L Crisis in 1992. Bank analysts research suggests that FDIC may require $100 billion from the insurance fund to cover the expense of an additional 150 to 200 bank failures they estimate will occur through 2013. This will require massive capital infusions into the FDIC insurance fund. The FDIC’s goal of maintaining confidence in functioning credit markets and a sound banking system may yet face its sternest test.
FDIC Chairwoman Sheila Bair is considering a number of options to recapitalize the fund. The US Treasury has a $100 billion line of credit available to the fund. Ms. Bair is also considering a special assessment on bank capital and may ask banks to prepay FDIC premiums through 2012. The prepay option would raise about $45 billion. The FDIC is also exploring capital infusions from foreign banking institutions, Sovereign Wealth Funds and traditional private equity channels.
Requiring banks to prepay its FDIC insurance premiums will drain economic capital from the industry. The removal of $45 billion dollars may not seem like a large amount but it is a considerable amount of capital that banks will need to withdraw from the credit markets with the prepay option. Think of the impact a targeted lending program of $45 billion to SME’s could achieve to incubate and restore economic growth. Sum2 advocates the establishment of an SME Development Bank to encourage capital formation for SMEs to achieve economic growth.
Adding stress to the industry, banks remain obligated to repay TARP funds they received when the program was enacted last year. To date only a fraction of TARP funds have been repaid. Banks also remain under enormous pressure to curtail overdraft, late payment fees and reduce usurious credit card interest rates. All these factors will place added pressures on banks financial performance. Though historic low interest rates and cost of capital will help to buttress bank profitability, high write offs for bad debt, lower fee income and decreased loan origination will test the patience of bank shareholders. Management will surely respond with a new pallet of transaction and penalty fees to maintain a positive P&L statement. Its like a double taxation for citizens. Consumers saddled with additional tax liabilities to maintain a solvent banking system will also face higher fees charged y their banks so they can repay the loans extended by the US Treasury to assure a well functioning financial system for the benefit of the republic’s citizenry.
You Tube Music Video: The 5th Dimension, Up Up and Away
Risk: bank failures, regulatory, profitability, political, recession, economic recovery, SME
On the night John Kerry ceded the election to Bush’s second term, I can still see W smirking while his smiling brain, Karl Rove looked on with smug satisfaction. Opined Bush, “I earned some political capital and I’m gonna spend it.” Spend it he did and his administration has nearly bankrupted the trust, treasure and security of this country.
As the United States limps to the blessed close of 8 years of the Bush Administration and the rule of a party that professes a disdain for government while demonstrating a striking ineptitude for governance; American’s are left holding a massive bag of bad debts reaping the painful yields of much squandered political and economic capital.
The regime that has refused to govern has left the door unguarded. Making it possible for a clique of collective interests that has the will, intelligence, verisimilitude and motive to take the reigns of state and to guide it in a dire hour of need.
Paulson’s bank bailout might just be a bloodless putsch of financial elites led by an alumni of investment and merchant bankers and their well placed confederates. The monied interests who have enriched themselves by gorging at the public troughs creating unfathomable pools of wealth for themselves are now trying to seize the country as their grandest prize. To be sure they remain hungry for returns, crave capital preservation and see the crisis as a great investment play to enlarge their riches. They smell the stench from the stinking corpse of the US banking system and are looking to claim the opportunity of a lifetime. They will go to great lengths to achieve their objectives. They are ready to employ economic blackmail to extort a massive tribute from multiple generations of US taxpayers to finance a takeover of the banking system.
This is the triumph of state capitalism. It is a similar model utilized by China, the EU, OPEC and other countries practicing the fine art of a state managed economy. This is not socialism. If this where socialism, all American’s would be receiving stock certificates and purchase warrants in the companies the Treasury is looking to finance. That is not in the cards. China is managed by a class of technocrats embedded in a centralized political party. America will now be ruled by a class of managers employed by Americas financial services whose sole goal is to maximize shareholder returns.
Is this a grand fleecing of America? The powerful and well placed are raiding the public treasury to fix past mistakes of their making and to bankroll their next bold move. When the state assets of the former Soviet Union were privatized, a class of oligarch’s arose out of the depths of the CCCP to seize control of them. The bank bailout is an event that bears similar characteristics. In Russia the private sector took control of state assets expropriating state ownership. Our bank rescue plan will provide US Treasury assets to the private sector so they can recapitalize and buy distressed bank assets on the cheap. No doubt sometime in the future, these privateers will be lauded by our elected officials as capital market heroes who single handedly rescued America by rationalizing the banking system.
Under normal circumstances the public trust would be secured by the social compact we have entered into with our Federal Government. Tragically, our three branches of government have all failed in their fiduciary duty to protect and serve the interests of American citizens. Special interests, ideologies, privilege and the rights of the stronger has trumped and crushed the will and interest of “We the People.” We are a representative democracy; republicans all, who believe in the democratic ideal who freely give our informed consent to be governed in exchange for the protection of public interest. This trust has been grievously violated. Our consent needs to be revoked.
Chris Dodd the Senator from Connecticut emerged from a weekend meeting with his head shaking. Said Dodd on the need to bail out the banks, “they painted a picture that was absolutely frightening and devastating for America. We must do this deal.”
The monied interests are holding the promise of America hostage. They say if we don’t comply with their demands, we will not be able to send our children to school, our retirement system and social security program will collapse, interest rates will go to double digits causing a cascade of mortgage defaults and bank failures. There will be anarchy in the streets. Sovereign Wealth Funds and other well heeled global investors will liquidate their holdings in US Treasuries and place the Federal Government in default. We’ll be no better then a banana republic.
It all looks very suspicious. Hank Paulson fully in control at the US Treasury making major moves to drastically alter our nations books and ledgers. Robert Rubin, former GS Chair and current well placed executive at Citicorp is now seen escorting Barack Obama no doubt offering real time sage advice. Jon Corzine, Mike Bloomberg and Governor Paterson are all bewailing the pending doom state and city budgets will suffer. State governments all over the country are growing more concerned each day as tax revenues fall, expenditures increase and the angst of American’s grow.
I’m having a hard time with this one. If its only about writing that $1 Trillion check to acquire a bunch of worthless assets I’m down with it. It’s only funny money anyway. Whats another $1T on a Federal debt of $11T. But this rescue plan serves a special interest more then it serves the general good of the common polity. As Alexander Hamilton taught us, debtor nations cede political liberty. It is unconscionable to saddle our country with this debt burden. Doing this deal will bind future generations to cover an obligation that condemns them to a life of indentured servitude.
This is not the way of free people. There is a better way.
Music: Bertolt Brecht’s Alabama Song Performed by The Doors
Risk: Democracy, Federalism, Free Markets, Debt, managed economy, state capitalism
The historic actions and non-actions by the Fed and Treasury Department continue the accelerating velocity of change in the global banking system.
The decision not to rescue Lehman Brothers was a sign of confidence in the capital markets. The acquisition of Merrill Lynch by Bank of America was a dramatic shattering of the last vestiges of Glass-Steagall Act prohibition of FDIC insured commercial banks owning investment banking institutions. This also represents a radical reconfiguration of the US and global capital markets industries.
Dow constituent AIG and its $1 T balance sheet has been a capital market problem child for the past few years. AIG has been mired in scandal for price fixing insurance premiums, accused of poor governance controls and the market has been critical of AIG for the unmanagability of its business units and the ballooning portfolio of its credit default swap and other risk transfer products correlated to the credit markets. It is seeking a $40 B bridge loan from the Fed to shore up capital while it seeks additional infusions from investors to avoid a credit downgrade by the major credit rating agencies.
The Fed also hinted about the creation of a special solvency fund of pooled assets from SWF, private equity providers, governments and other institutional investors. Perhaps this is the pool that AIG will dive into for its bridge loan?
These are incredible developments and our regulators, governmental institutions and industry executives are doing their best to manage this crisis. They are walking a fine line inching towards the precipice of where free markets and a managed economy intersect.
WOW. Is our hair on fire?
Music: Edward Grieg, In the Hall of the Mountain King
Risk: free markets, banking system, Glass-Steagall Act, Federal Reserve,
He’s been hunkering down in some fox hole all summer as the economic storm was raging through the global banking and capital markets system. Keeping his head low and his powder dry. Every once and awhile he would lift his head to survey the wreckage in the credit markets. He would enjoy the Beijing Olympics and offer prayers to the Gods of Commerce in the hope that his tax rebate program would provide the stimulus to kick start an economy droning to a halt.
When pressed to comment on the deteriorating balance sheets and financial conditions of his GSE problem children Fannie and Freddie, Paulson with all the sternness of a father committed to the practice of tough love would say, “I have a bazooka in my bag of tricks and if I have too I’ll use it.” Well Paulson fired his bazooka this weekend and it blew Fannie and Freddie into the protective conservancy of the Federal Government. Tough love indeed.
Though the action will wipe out current equity holders of the GSE’s the overall equity markets are responding favorably. This is probably a good time to sell.
Sovereign Wealth Funds, Central Bankers and large institutional holders of debt securities and bonds welcome the action and are signaling that with the Fed’s interventionist policy protecting any downside risk will once again begin to invest in US banks to shore up solvency and maintain liquidity in credit markets.
Investment bankers are lining up lunches with bank CEO’s and private equity firms to stoke the M&A fires and perform a vital national service of rationalizing the US banking system.
Lastly the nationalization of Fannie and Freddie will create lots of grain for the political gristmill for the presidential election.
TBTF, socialism, activist Feds, Wall Street vs. Main Street, big business vs. the little guy are all of the political platitudes and cliches that will be bandied about. Senator Jim Bunning from Tennessee called Bernanke a socialist after the bailout of Bear Stearns. Bunning will be calling the Treasury Department the Polit Bureau West after this move.
This is state capitalism. The United States is moving ever so closer to the economic model of China.
Song: The International
Risk: credit markets, liquidity, housing market, recession
The erosion of jobs continues as the economic malaise seemingly deepens in the United States.
Today the Labor Department issued its employment report for August and it points to a weakening economy and an unemployment rate at a 5 year high.
We cannot detect any sector recovery drivers in the US economy. Global drivers are also slowing down as demand from the worlds largest market continues to abate.
One silver lining of the global economic downturn is the slowing of inflationary pressures. This might provide the impetus for the Treasury to send out another round of tax rebate checks. Don’t count on it though.
Hedge funds are deleveraging market positions and raising cash. This may impact market liquidity and contribute to extended market softness.
Yesterday on CNBC Bill Gross, CEO of PIMCO indicated that banks need additional $400 B infusion by the Fed to maintain sufficient capital levels to assure credit availability and market liquidity. Hedge funds and SWF’s are waiting for this demonstrated commitment by the Fed before they can feel confident about a strengthening economy and a more favorable investment environment.
The Hamilton Plan outlines a program to reignite economic growth for a moribund economy.
Music: Stevie Ray Vaughan and Jeff Beck: I’m Goin Down
Risk: recession, banking, unemployment, credit crisis, banking
The FT reported that the China Investment Corp. (CIC) a Sovereign Wealth Fund with $200 billion in assets is looking to team up with the private equity firm JC Flowers to make acquisitions in the financial services industry. CIC has been somewhat active in acquiring financial services assets in the United States. CIC’s portfolio companies now include, Morgan Stanley, VISA and Blackstone Group.
After walking away from it’s commitment to buy Sallie Mae JC Flowers is loaded for bear and sees tremendous investment opportunities in the distressed asset valuation of financial services firms. It is a classic vulture fund mentality that sees great opportunity in the depressed equity valuations within a sector.
The US banking industry is ripe for rationalization. During the height of the credit marketing orgy, small banks were popping up like mushrooms after a soft summer rain. Cheap credit and funding sources flush with cash from the surging values in real estate and public equity markets put a banker on every street and an equity line of credit for every home. Risk aversion in the credit markets and dried up liquidity are changing the face of the sector and many of the publicly traded community banks need to attract equity capital to strengthen their balance sheets or merge with other banking institutions.
Vernon Hill, the former CEO of Commerce Bank, (recently acquired by TD Bank) has set-up a private equity fund to make acquisitions of small and mid-cap banks. The face and ownership of the banking sector is evolving. A drastic change in the systemic and regulatory structure of the banking industry is a welcomed inevitability. Global investors, regulators and industry executives will be hard pressed to balance the interests of bank stakeholders while serving the vital social function of facilitating commerce and finance for communities, corporations and consumers.
You Tube Video: Bird and Diz playing Hot House.
Risk; financial services, credit, regulatory, private equity, SWF, community banking
I don’t really know what Acela means.
I imagined it to be a Greek or Latin word perhaps the name of a divine conveyance or swift footed messenger from Roman mythology. It’s probably nothing that deep. Most likely it is one of those made up words invented by a high powered marketing firm on Madison Avenue. Most know it as the rebranding of Amtrak. A kind of corporate rechristening available only to the well capitalized and those blessed with fat marketing budgets. They had to do it. After the supply-sider victory of the Reagan Revolution the legacy of losses and unending government subsidies to the failing railroad industries had to be purged from the new American political lexicon. It’s kind of like when Khrushchev was removed from power in the USSR. History books had to be rewritten to exclude the memory of Khruschev’s glorious contributions to building a workers’ paradise with Stalinist absolutism.
Riding the Acela Express from Newark New Jersey to our nation’s capitol in Washington DC provides a front seat view of a sad and sobering survey of our quickly evaporating manufacturing base and our country’s diminished industrial strength.
Riding the Acela Express down the spine of our county’s once formidable east coast industrial corridor presents a sad irony. The former Soviet Union unintentionally destroyed its economy due to its inefficient deployment and allocation of capital. While the United States, the USSR’s great historical antagonist and seeming victor of the cold war, destroyed it’s manufacturing base through the carefully considered rationalization of our industries by reallocating capital to foreign markets in search of superior returns.
In practice, this meant closing old inefficient factories and moving them overseas. From an economic standpoint it makes perfect sense. Capital seeks its best return. If that return can be found in an overseas market where labor costs are lower, tax rates are more favorable and regulatory oversight is non-existent the shareholders of the firm that closed the doors on US workers will realize a better return on their equity investment. That’s how capital markets work. Michael Milken and other predators would have a ball and build many fortunes instructing corporate America on the finer points of financial alchemy and demonstrate how easy it was to spin gold from the junk of old rust belt industries.
At first it kind of made sense. We didn’t want those kinds of jobs anyway. They were dirty and caused pollution in our communities. These types of businesses were highly unionized and susceptible to industrial disputes that only antagonized the uneasy relationship between labor and capital. Many of these industries were too capital intensive and the investment needed to maintain world class competitiveness was just too high to see any kind of acceptable return within the required time frames that benefited management and shareholders. The US was moving to a service oriented economy that obviated the need to manufacture anything. We would be an economy of designers, merchants, consultants, marketers and bankers. We did retain some clean, high tech, lite and lean factories that would rely on assembling machines from various components sourced just in time from overseas manufacturers. That was the industrial and economic vision of post cold war America.
But the vision outside my window on this Sunday morning Acela Express ride looks very different. They say that Georgian’s know their home when they see the red clay soil of their beloved state. As I pass through the metro areas of Trenton, Camden, Philadelphia, Wilmington and Baltimore I see miles and miles of half demolished factories whose crushed emulsified bricks have turned the earth of these abandoned industrial brownfield to blazing acres of red ochre.
The landscape offers a view of row after row of empty disassembled and decaying factories. They litter the landscape like forgotten industrial sarcophagi that was long ago broken into and pillaged, its contents whisked away by savvy tomb raiders.
The abandoned shipping docks whose bills of lading long since posted last orders that disembarked decades ago. Old forges, not fired since our Great War now stand as furtive tombstones to a productive past. These committed sentinels still stand post, watching over rusted rails that once creaked under the weight of bulging freight cars delivering goods to defend the arsenal of democracy. Now the rail yards serve no purpose other then rusted planter boxes for some invasive plant species. Closed beer gardens stand next to empty Union Halls whose cheap tin signage proclaims solidarity from a bygone day. You can still barely make out the union local number if you catch the right light from this mornings emerging sun. And the church steeples and factory smokestacks both covered in many layers of hard earned coats of gray soot stand in each others holy presence reminding us of the solemn Shaker proverb, “hands to work hearts to God.”
Last we witness the awful toll the dismantling of our industrial base has claimed on our urban communities. We pass archaic schools that rise like Gothic anachronisms, resembling prisons not Lyceums of learning. We see the tiny wooden row houses of Philadelphia and Baltimore and wonder how the inhabitants will sleep through a night where temperatures will remain uncomfortably hot. Nature and capital both abhor a vacuum. In the absence of legal industry and commerce such areas will become incubators for the growth of black-markets whose social cost and commercial thrust poses great risk to the heath and efficiency of free markets and the personal liberties of free people.
The USSR failed miserably in its attempt to build a workers state. Centralized bureaucratic planning, totalitarian political control, and the parasitic drain of capital by a class of ruthless self serving party elites strangled all entrepreneurial initiative and any hope for an efficient economic system. The possibility for workers to fully enjoy the fruits of their labors vanished as nothing more then an idealistic dream.
The current state of our manufactures and how we got there may turn out to be one of those funny ironies of history. What the Soviets did to their economy by accident and incompetence, we did to ourselves through intention. The industrial policies and practices we have pursued have strengthened the economies and industrial capacities of Russia and China. Both countries economies are experiencing robust growth. Russia due to its extensive oil and natural gas reserves is once again an emerging superpower that the United States must consider in its global political, economic and military strategies. China due to its rapid development of its manufacturing capacity now boasts tremendous balance of trade surpluses. China’s exports far more then it imports and it puts its surplus into its massive Sovereign Wealth Fund. This SWF is an investment vehicle that loans money to the large US banks to bolster their fragile balance sheets so we can get through this dangerous and debilitating credit crisis. The tables have dramatically turned.
The Acela Express. What a window it provides on the state of the American economy. After an exhaustive search I discovered a reference to Acela. In a far eastern language it refers to “a cloth less one.” Or in other words naked, as in the emperor has no cloths or perhaps we are vulnerable and exposed as a naked child in a blizzard without a strong industrial and manufacturing base? Or as in the “clothless one” hides nothing and always presents the naked truth. However you interpret Acela, let us hope that the Midnight Special continues to shine an ever loving light on you.
Music: Lonnie Donagen, Midnight Special
Risk: capital flight, manufacturing, labor unions, urban communities, political, global competitiveness, balance of trade, railroads,
During 2007 the collective value of Sovereign Wealth Funds increased 24%. In aggregate the funds hold a total of $3.5 trillion and are growing fast.
The source of this wealth is massive surplus trade balances as in the case of China, the world’s largest SWF. This is followed by Russia and Kuwait whose source of wealth is oil and natural gas. The $3.5 trillion in assets are greater then the GDP’s of countries such as Great Britain, France or Germany.
Consider the banking crisis in the west. Goldman Sachs estimates that credit losses will approximate $1.2 trillion. These staggering amounts of wealth accumulation and wealth depletion is a startling indication of how the earths axis of geopolitical power is tilting away from the west.
Risk: credit, banking, geopolitical