This past week saw the global geopolitical focus shift away from U.S. President Donald Trump for the first time in a month. Despite the controversy he stirred up in refusing to back the Israeli-Palestinian Two State Solution idea from the last decade of American foreign policy, all investor eyes were elsewhere.
It is the rising populism in Europe, the real story of 2016 and 2017 (so far), that has caught the attention and focus of the global investing community. New polls out this past week and weekend show that populist party election upsets are now possible in not only founding EU member France, but also in the Netherlands (not to mention Italy later this year). Russia also has become involved in the French elections, aiding populist candidate Marine Le Pen in her efforts to claim the presidency of France in May.
One beneficiary of the fear and potential chaos these elections results may spur is struggling Swiss bank Credit Suisse. They have managed to capitalize on the fear of their Ultra Net Worth High Individual clients to increase complex investing strategies which are driving a significant recovery in their traditional European roots business.
The gyrating currencies from Brexit and global instability have hurt largest international bank HSBC by contrast. The British banking giant with the largest banking balance sheet in the globe missed aggressive profit and revenue targets set by analysts in results the multinational bank just announced. Global events show it is past time to win over your financial advisor on gold in your portfolio. This is because Gold offers insurance and protection during market turbulence.
Surging Populism Means EU-Shaking Upsets Possible in France and The Netherlands
French Presidential Candidate Marine Le Pen not only holds the lead in the polls for the first-round presidential elections in April, her lead is widening as of the Monday OpinionWay poll showing her with an increase of a single percentage point to 27 percent versus unchanged results for main rivals Macron and Fillon at 20 percent each.
While most opinion polls still show Le Pen losing in the runoff election in May (with OpinionWay predicting a Macron victory with 58 percent to her 42 percent), there is a big data computer program at Leonie Hill Capital showing the inevitable victory of Marine Le Pen in both polls, which would make her the next French president. This same type of computer algorithm correctly predicted the victory of U.S. President Donald Trump when oddsmakers gave him a less than ten percent chance of winning the last November American elections.
More upsetting to many in France and Europe is that Marine’s National Front party obtained its campaign financing from a bank in Russia and receives extremely favorable coverage from the state run media of Russia. While Russian President Vladimir Putin does want to see wedges driven in the EU and their unified Russian sanctions policy, he clearly does not want to see the possible future breakup of the Euro and EU which are high among Le Pen’s stated goals. This is because almost 40 percent of the Russian foreign currency reserves are held in euros, as this pie graph shows:
Vladimir Putin himself stated in a September Bloomberg interview:
My country is “not interested in the collapse of the euro zone.”
It is not only France which is open to a populist party takeover this year. In major European economy and co-founding EU member The Netherlands, the Parliamentary elections take place on March 15th, making them possibly the first domino to fall this year. Controversial populist figure Geert Wilders, who heads his Freedom Party, has been called the next thunderbolt in the global populist assault. He leads the Peilingwijzer poll aggregate of all Dutch political polls consistently for months now, as this chart plainly shows:
This party’s manifesto is only a single page in length and it heralds major changes in The Netherlands if Wilders not only wins the election but is somehow able to form a government (in a country where he has no political allies among the other significant parties). Their aims are to completely de-Islamicize the Netherlands by closing every mosque, banning the Koran in the country, and stopping all Muslim nations’ immigration to their country.
More importantly to EU and global markets and economies, their stated aims are to close down the borders, withdraw completely out of the European Union, and increase spending on police and defense while reducing outlays on both foreign aid and wind power.
For many analysts and political commentators on the Netherlands, it is not the base case that he will form the government even when he likely wins, since the current Prime Minister and leader of the next largest party recently tweeted that there will be no coalition pact (should Wilders carry the poll) with his terse statement, “Zero percent, Geert. ZERO percent.”
European National Election Uncertainty Boosting Credit Suisse’s European Banking and International Wealth Management Division
After years of struggling to recover from low and even negative ECB-set interest rates for its European businesses, Switzerland’s Credit Suisse announced this week that it is finally witnessing a significant pickup in its traditional core operations in private banking throughout the continent as its ultra high net worth clients emerge looking for complicated strategies to safeguard their vast fortunes from the unexpected and politically upsetting victories which the polls of imminent national elections in The Netherlands, France, (and later this year Italy) suggest will occur.
Credit Suisse Head of International Wealth Management Iqbal Khan revealed:
“I would expect Europe to rebound in profitability” because of reasons that include the political uncertainty. Our “clients need advice.”
The past year, this trend worked against Credit Suisse as many wealthy clients held off on putting their money to work in fee-earning investments at the bank because of their worries surrounding both Brexit and the upset election of American President Donald Trump. Khan’s critical wealth management division of the bank is now aiming for a profit before taxes of 1.8 billion Swiss francs (also $1.8 billion USD) for 2018, though this was reduced from his last goal of 2.1 billion francs thanks to impacts from last year’s populist story scares.
Achieving it will heavily depend on the returns the bank generates across Europe. Tensions are high in critical 2017 election nations which now include The Netherlands, France, Italy, and even Germany (2018 elections). Thanks to fears and worries regarding populism, euro-skepticism, a potential unravelling of the European Union, and anti-immigration and -Islamic sentiment, the bank is busily touting its investment banking skills to craft “complex solutions to help ultra-wealthy clients manage risks,” per Credit Suisse CEO Tidjane Thiam.
Despite Massive Cuts to Expenses, Largest International Bank HSBC Misses Profit Estimates
Another famous European-area bank struggling because of the geopolitical and financial chaos which the world’s populist movements have created for currency exchange rates is British-based, largest international bank HSBC. CEO Stuart Gulliver began restructuring the bank away from being “the World’s Local Bank” to a more profitable bank which still boasts a global footprint in 71 countries and territories (though it was 88 before he began his slashing efforts).
Doing so has meant that Gulliver has already eliminated over 40,000 staff positions with the global banking giant. He still promises another 25,000 jobs will be cut as he continues his exodus from over 80 businesses and 17 nations and territories. Despite the fact that Gulliver has reduced expenses by billions of British pounds, HSBC still struggles to increase its profitability, as have the overwhelming majority of other European banks. In January, CEO Gulliver told investors they need to reduce their expectations for profits to 10 percent returns on equity as this is quite likely the most a major universal lender will be able to accomplish anymore.
Profit at each of the massive bank’s four operating divisions and across their five geographic regions missed estimates anticipated by analysts at the Swiss bank UBS Group. Revenues similarly missed on all important business units. HSBC’s critical Tier 1 capital ratio fell from 13.9 percent end of September to 13.6 percent. Though the drop is disappointing, this key measurement of HSBC’s financial resilience is still among the highest ones of all mega-banks in the world.
Despite the setbacks which included a substantial $2.4 billion in writedowns on its European private bank value, the London-traded shares of HSBC have roared 58 percent higher up to yesterday (mostly because of aggressive stock share repurchases) as the chart below proves:
This gives HSBC’s London-traded stock the second greatest price return of any bank in Europe. HSBC has been dogged by problems from its Geneva private bank unit it had purchased from Republic New York Corp. in 1999. These included the Swiss operation’s money laundering and hiding the assets of drug cartels, tax cheats, and global weapons dealers.
It all goes to show you why you should own gold in times of financial crisis and in order to protect the value of your retirement account assets from the crazy geopolitical events that have the world order under the greatest attack since World War II.