Putin, Xi, Macron: how geopolitics shapes banking


The war in Ukraine, the rise of China, economic stagnation, and deteriorating relations with Africa are some of Europe’s most pressing geopolitical challenges.

In this episode, I talk about how banks reflect these geopolitical shifts.

Until the 2022 invasion of Ukraine, EU politicians and bankers treated Russia like any other Central and Eastern European country. Banks like UniCredit, Raiffeisen Bank International, Société Générale and others had significant subsidiaries in Russia, just as they had in e.g. the Czech Republic, Poland or Bulgaria.

Vice versa, Russian banks did business in Europe.

However, since the invasion, all but one Russian bank in the EU have been forced to shut down. In contrast, European banks continue to operate in Russia, to the chagrin of European and American officials.

As the visit of Xi Jinping to Hungary and Serbia demonstrates, good political relations and Chinese investment go hand in hand. Usually, the larger a country’s GDP, the more foreign banks it attracts. But although Hungary has a small economy, it has more Chinese banks than e.g. Austria, Sweden or Romania.

Macron talked about the need for cross-border consolidation of European banks. It’s easy to suspect ulterior motives, as BNP Paribas and Crédit Agricole are well placed to buy foreign competitors. But given the single European market, the dominance of local banks in the biggest euro countries doesn’t seem right.

Finally, as France’s military and political power in Africa wanes, French banks have been selling their African subsidiaries to local banks.

Future episodes will be about how to sell SocGen, the effect of higher interest rates, and the frozen Russian central bank assets at Euroclear.

Transcript/blog version:

Hello and welcome to another season of the Finrestra Podcast! 

I’ve been on hiatus for more than a year, but now I’m back with a lot of new content. But more on that at the end of this episode.

Today’s topic is the geopolitics of banking. I’m gonna talk about foreign banks in Europe and European banks in the rest of the world based on presidents Putin, Xi and Macron.

So first of all, Vladimir Putin. 

Since Putin’s invasion of Ukraine in 2022, a lot has changed for banks, both for Russian banks in Europe and for European banks in Russia. 

Almost immediately after the invasion, Russian banks in Europe were sanctioned or they suffered bank runs, and then the European regulators shut them down. 

Sberbank, the largest Russian bank, had a number of subsidiaries in Central Europe. It had bought these from Austrian Volksbank in 2012, at a time when Russia was still seen as a “normal” country. 

Sberbank Europe failed in the days after the invasion. Its operations in countries like Slovenia and Croatia were sold to local competitors.

Russia’s second largest bank, VTB, was also active in a couple of European countries before the war. Those operations are liquidated

But there were also some smaller Russian banks that you probably never heard of.

For example, the fourth largest bank on Cyprus was RCB, formerly known as Russian Commercial Bank. RCB doesn’t exist anymore.

In the Netherlands, there was Amsterdam Trade Bank. Despite the name, it was owned by Russian Alfa Bank. Amsterdam Trade Bank was sanctioned and then closed

Recently, in Luxembourg, the East-West United Bank was also closed down. East-West United Bank started as a Soviet bank during the Cold War, but its story ended thanks to Putin and the European sanctions.

Luxembourg is also the only country in the EU that still has an active Russian bank, Gazprombank. The EU is still buying gas from Russia, and the payments go through Gazprombank.

So that covers the Russian banks in the EU. 

If we look at the European banks in Russia, the story is quite different. 

Maybe I should start with the situation before the invasion. 

According to the Russian central bank, there were three European banks with significant operations in Russia: UniCredit, Raiffeisen Bank International and Société Générale.

Intesa Sanpaolo, OTP, ING and a couple of others also did business there. 

These are all banks who had expanded not just into Russia, but also into other former communist countries like Poland, the Czech Republic or Bulgaria.

Of these European banks, only Société Générale has fully left Russia. 

SocGen’s subsidiary Rosbank was sold to a Russian oligarch

The ECB and the Americans are trying to force banks like Raiffeisen to leave Russia. 

Janet Yellen has even threatened European banks with sanctions if they don’t comply. 

It’s funny that I didn’t read any warnings from Yellen to JPMorgan and Citibank, who also still operate in Moscow.

I guess it shows you who’s the boss in international politics and finance.

Geopolitics aside, you can question the wisdom of selling a profitable bank to a friend of Putin. 

But given the fate of the Russian banks in Europe, it’s strange that the Western ones can still do business in Russia.

Maybe it’s for propaganda: unlike the West, Russia respects the rule of law.

Or it could be because they’re useful for facilitating international payments. 

Or maybe Putin believes that European bankers can influence politics.

That would be pretty naive. 

In Europe, politicians are much more powerful than bankers (see Brexit).

It’s probably more likely that Putin thinks it’s good to retain some leverage over Western banks, because billions of euros of the Russian Central Bank are frozen in the EU.

Western politicians want to use that money for Ukraine, so Putin could retaliate by nationalizing their banks.

So that was the Putin chapter of this banking and geopolitics episode. 

Next, let’s move on to China. 

Xi Jinping, the Chinese president, was in Europe last month. 

He visited three countries: France, Hungary and Serbia. 

France is a logical destination: it’s the second largest economy in the EU, and the only one with nuclear weapons. 

But why did Xi go to Hungary and Serbia?

Well, obviously because they have the best political relations with China.

And those relations result in Chinese investment: from BYD factories in Hungary, mines in Serbia and the railway between Budapest and Belgrade.

What’s the geopolitical banking angle here?

If you’re a Chinese company that’s gonna invest abroad, why would you depend on Western banks?

It’s more convenient to deal with banks that you know, and who speak your language.

So there are two Chinese banks in Hungary: China Construction Bank and Bank of China. Bank of China even has a regional headquarters in Budapest. And it has a branch in Belgrade.

For comparison, there’s only one Chinese bank in countries like Austria, Sweden, Ireland and Romania, who have much larger economies than Hungary and especially Serbia.

And that’s remarkable, because there’s a strong correlation between a country’s GDP and the number of international banks that operate there.

But taking into account the geopolitics explains why Hungary and Serbia are outliers: Chinese banks are attracted by more than GDP alone.

Now with all of this talk about two small countries, I don’t want to give you the impression that Chinese banks only follow geopolitics. 

In fact, there are five major Chinese banks in Paris and Frankfurt, so the “law” of financial geography does apply. 

However, here’s a fun fact: the EU country with most Chinese banks is not France or Germany, but… tiny Luxembourg. 

That’s for another episode.

So that was the story of Xi Jinping and the Chinese banks in Europe. 

What about European banks in China? 

China’s economy relies almost entirely on its own domestic banks. 

European banks do more business in Hong Kong than in mainland China, a country with more than a billion people.

Compared to making cars or chips, banking is pretty simple. So the Chinese didn’t need foreign banks to learn how to run their banks.

Finally, I wanna talk about Emmanuel Macron, the French president.

Macron recently talked to Bloomberg about the need for cross-European banks. 

Personally, I don’t believe that should be a political target. 

The banking union is an obsession of people in Brussels. But it won’t help the economy of the EU. 

Although I have to say, I’m not surprised that Macron, a former Rothschild banker, is pushing for cross-border bank mergers in the EU. 

BNP Paribas and Crédit Agricole, the two largest banks in the EU, are French.

So they are in pole position to consolidate the industry in Europe.

But if we give Macron the benefit of the doubt, who doesn’t just want to create French banking empires, he actually does have a point.

In the big five euro countries, Germany, France, Italy, Spain and the Netherlands, the biggest banks are all domestic players. 

In contrast, Central and Eastern Europe is much closer to Macron’s pan-European vision. 

Their banking systems are a mix of foreign and domestic banks.

There are some financial and historical reasons for this difference between East and West.

A top bank in a small economy might cost a couple of billion euros, while a similar bank in a large country could cost an order of magnitude more.

So twenty years ago, Western banks bought banks in Eastern Europe, where GDP was much lower than it is today.

A similar expansion in the West would have been extremely capital intensive.

For example, Dutch ABN AMRO was valued at 71 billion euros when it was acquired in 2007.

The 1990s and 2000s were also a period of geopolitical optimism and openness to foreign investment.

But in 2024, politicians wouldn’t be happy that foreigners buy the local banking champions, even if they’re from other EU members.

Remember that this episode is about geopolitics. 

If any ‘Western’ banks have enough capital to buy big French banks, it’s the Americans or Canadians. 

And although the US and Canada are his NATO allies, there’s no way Macron would give JPMorgan permission to buy BNP Paribas.

In fact, when the journalist asked if Macron would agree with the sale of Société Générale, the French President said “Dealing as Europeans means you need consolidation as Europeans.” 

In the interview, they suggested Santander as the buyer. 

That wouldn’t be my suggestion. I’ll do another podcast episode about how I would sell SocGen.

OK, so that’s about France and French banks in Europe.

Finally I wanna comment on France and its banks in Africa. 

The French military recently ended its missions in the Sahel region

France isn’t popular on the African continent, where it’s viewed as the former colonizer. 

For example, the CFA franc in Western and Central Africa is controlled by Paris. 

Over the past years, the large French banks have sold most of their African subsidiaries to local banks. 

Although this is part of a global trend where banks focus on core markets, it’s hard not to think that geopolitics played a role in these decisions.

To wrap up the story of this episode, banks follow geopolitics. 

We’re seeing a fragmentation of a globalized world into power blocks, and banks follow these geopolitical shifts. 

Western European banks expanded into the former communist bloc after the Cold War, and they did well in Central and Eastern Europe. 

However, expansion into Russia has proven unsustainable since the invasion of Ukraine. 

In the future, European banks will probably operate more within politically friendly regions, similar to Chinese banks.

OK, that was it.

As I mentioned at the beginning, I want to pick up this podcast again. 

I have a lot in the pipeline. 

In the past, I started episodes with financial news. 

Now, I’ll talk less about current events and more about long term trends.

And especially about my own ideas about European banks, the ECB and the euro economy. 

Next episode will be about how to sell SocGen. 

Other episodes in the pipeline are about the effects of higher interest rates, Russian assets at Euroclear, and Lagarde vs Draghi.

Thanks for listening and till next time!

European bank M&A: domestic consolidation

European banks have been busy buying and selling foreign subsidiaries to increase their market share or to reduce complexity.

But the largest mergers and acquisitions have been between banks in the same country.


Crelan buys AXA Bank for 691 million (2021)


MKB Bank, Budapest Bank and Takarékbank merge into MBH Bank (2023)


Intesa Sanpaolo buys UBI Banca for €4.1 billion (2020)

BPER Banca buys Carige for a symbolic €1 (2022)


Caixabank buys Bankia for €4.3 billion (2021)

BBVA wants to buy Sabadell for €12.2 billion (2024)


UBS buys Credit Suisse for 3 billion Swiss francs (2023)

Julius Bär might buy EFG (2024)

United Kingdom

Nationwide buys Virgin Money for £2.9 billion (2024)

European exchanges, high earners, Imperial Chinese bonds, diamonds, renewable energy, more

European equity exchanges market share (source: Cboe)

Labour earnings by economic activity (Eurostat)

High earning bankers (EBA)

2022: Swimming naked (Finrestra podcast transcript)

Hello and welcome to another episode of the Finrestra Podcast! (Apple, Spotify, YouTube)

I am Jan Musschoot. 

Warren Buffett once said: “Only when the tide goes out do you discover who’s been swimming naked.”

And boy, have people been swimming naked in 2022!

Investors saw the valuations of tech companies crash by 50, 70 or even more than 90%.

The so-called “geopolitical” European Commission – who wants the EU to be the first climate neutral continent – had to beg for gas around the world after boycotting Russia. 

But the naked swimmer that I want to focus on is the ECB, a favorite of this podcast.

This is what Lagarde said about inflation at the end of 2021:

So inflation was supposed to have been a hump, gradually coming down to the 2 percent target over the course of 2022.

But in fact, inflation had been too high since the summer of 2021, and it basically kept on going up for the entirety of 2022. In December of 2022, it dropped a little, but it was still 9.2 percent according to Eurostat.

The ECB’s economists have been worried a lot about inflation expectations and wage-price spirals.

But what’s been driving Europe’s inflation for more than a year has been the cost of energy. It’s not clear at all how the metrics that central banks usually look at are relevant for this kind of inflation. I did some research last year that showed that if you look at government deficits, the unemployment rate, or the central bank interest rate, these are basically irrelevant when it comes to predicting the inflation that we observed. 

What’s mostly correlated to the current inflation is the amount of energy economies use relative to their size. In other words, energy intensity is what drives inflation. 

And when it comes to energy, the ECB has screwed up. Yes, central bankers made a lot of speeches about climate change since Lagarde is in charge. But I can’t heat my home with speeches and tweets.

If the ECB had funded investments to make us less dependent on imported fossil fuels, inflation would have been much lower.

Imagine that the EU had invested massively in building renovation, heat pumps and clean energy sources while inflation was below target.

This would have reduced our vulnerability to Russia and other geopolitical rivals.

And fossil fuels would be a much smaller part of the consumer price index.

On top of that, Europe’s industry would have plenty of cheap energy right now…

So energy-driven inflation was the first tide that showed that the ECB was swimming naked.

Now on to the second tide.

With inflation out of control, the ECB needed to do something. While Lagarde said in 2021 that it was unlikely they would raise rates in ‘22, the central bank has raised rates 4 times since the summer. The deposit facility rate went from negative 0.5 percent to positive 2 percent. 

But this exposes the ECB to another problem, which is the mismatch between its assets and liabilities. While inflation was below target, the ECB bought trillions of euros of bonds. A lot of these have a fixed, negative yield. Under the PEPP, the pandemic emergency purchase program, the ECB put a turbo on this QE. 

And how were these bond purchases funded? With bank deposits. 

Now what happens when interest rates go up? The central bank starts to pay interest on these bank deposits, while its assets have a fixed yield. 

According to one estimate, the Eurosystem is going to lose about 600 billion euro because of this failing risk management.

Anyone with a basic grasp of finance could have predicted this.

I even told the ECB to issue bonds instead of funding their assets with reserves. 

Of course, they didn’t listen, because they’re so smart…

And what’s extra sad, is that the ECB has been complaining that governments haven’t invested enough in infrastructure.

Central bankers also complain about how untargeted government relief to help citizens and companies with their energy bills contributes to inflation.

The problem is again that the ECB didn’t put its money where its mouth was.

For years, QE has kept government funding costs in check, without any conditions on how governments should spend to keep inflation in check.

Maybe as a serious, non-political central bank, the ECB should have actually made sure that these crucial investments got done? 

Instead, the ECB basically acted as a financial speculator, counting on low inflation and low interest rates forever.

Again, just imagine that the ECB would have invested not in securities, but in real infrastructure over the past decade.

How much better off Europe would be right now!

The final tide that went out in 2022 is that of Lagarde’s leadership. 

Everybody knows that she’s not an economist. So maybe we shouldn’t blame her for failing to anticipate the inflation or the financial losses.

But she was previously a minister in France and the head of the International Monetary Fund.

So she must be a strong leader, right?

For those of you who’ve been listening to the podcast for a while, you might remember what I wrote in my New Year’s letter to Lagarde a year ago.

I suggested that either she quit, or she starts doing her job. 

Obviously she’s still the President, so she didn’t quit. 

But as the President, she should have fired the people who’ve been feeding her false predictions for all of this time.

At the end of 2021, ECB staff projected that euro area inflation would be about 3% in 2022. And core inflation would be below 2%. 

I don’t know if it’s even possible for Lagarde to fire the most high profile economists like Isabel Schnabel or Philip Lane. But you’d expect some heads to roll. 

But we didn’t see that at all. What we did see, was ECB staff asking for higher wages, to keep up with inflation.

Irony is dead…

Now before I go, I want to thank everybody who has supported this podcast and my YouTube channel. It’s not always easy to combine this with my other work, but I do appreciate your feedback!

In the coming year, I’m planning to release one podcast episode per month. And I want to do about a dozen deep dives into central banking and the financial system on the Finrestra Youtube channel. 

So if you want to keep informed, please subscribe!

This has been another episode of the Finrestra podcast. 

You can follow me on Twitter @janmusschoot.

You can mail me at jan.musschoot@finrestra.com

Thanks for listening and till next time!

(P.S.: Lagarde cartoon created with Dream by Wombo)

Finrestra on YouTube: where do we stand at the beginning of 2023?

The start of the new year is a good time to reflect on some things I did.

Last year, I wanted to get 150,000 views on YouTube.

Although I didn’t reach that target, I am quite pleased with the progress I made. Especially given that the first half of 2022 was so busy that I could hardly create any new videos.

So as of 8 January 2023, the Finrestra YouTube channel has 33,551 views and 247 subscribers.

Some videos did well, others didn’t get the number of views that I expected they would get. That’s life…

One of the features of YouTube is that your content can suddenly be picked up by the algorithm, even when it has been posted months earlier. For me, that a big advantage compared to social networks like Twitter and LinkedIn.

In 2023, I hope to be able to create about a dozen ‘deep dive’ videos, like the one on inflation and the one on interest rates.

In addition, I’d like to make a podcast episode every month (minus the summer holidays).

Rather than maximize the number of views, it would be great if I can get more watch time. Currently, my most popular video has been watched for 150 hours.

If I can create 10 videos that get watched 200 hours or more in 2023, I’ll be very happy 🙂

Thanks for your support!

This was 2022 in European finance

  • European bank stocks dropped, but recovered

HSBC sells HSBC Canada. What should it do with the cash (Finrestra podcast transcript)

This episode is available on Apple podcasts, Spotify and YouTube.


Hello and welcome to another episode of the Finrestra podcast! I am Jan Musschoot.

In this episode, I will talk about the sale of HSBC Canada and especially what HSBC can do with the cash it will receive from this sale. But first, let’s do a quick recap of the financial news of November.

FTX, a crypto trading platform, went bankrupt and its founder SBF went from being a multi-billionaire to essentially being broke.

In the euro area, inflation finally went down a little. Inflation was 10% in November whereas inflation was still 10.6 percent in October. Inflation is going down a little thanks to lower energy prices.

There was also news from two large European banks: Swiss Credit Suisse and Italian Monte dei Paschi di Siena both raised capital.

In other banking news – and also the topic of today’s episode – HSBC sold its Canadian subsidiary to Royal Bank of Canada (one of the largest Canadian banks). This fits into a broader pattern that I in one of the previous episodes of the Finrestra podcast called Go big or go home.

If you look at where HSBC derives its revenue from, Canada is barely three percent of revenue. It’s about four percent of profits and also four percent of the balance sheet. So banking in Canada is just a small part of the global group that is HSBC.

So it makes sense to exit this market, because you cannot have the scale you want to be highly profitable. Canada also has some big domestic banks who dominate banking in the country, so it makes sense for HSBC to exit the market, especially given that they received a good price for it.

This Go big or go home strategy is something that HSBC has been following for a few years now. For example, last year they also announced that they would exit [part of] the retail banking business in the US and that they would sell the French retail banking business, which was also about three percent of the group’s revenue. But they cannot compete to with the large French banks in France. And then in November 2022, so last month, HSBC also sold its bank in Oman (in the Middle East) to a local bank.

And this ‘let’s go big or go home’ strategy is not unique to HSBC. For instance last year I did a podcast episode about the sale of Bank of the West by BNP Paribas. The French multinational bank sold its US retail banking division to focus more on its core markets. And that’s also what HSBC has been doing here with the sale of HSBC Canada.

In financial terms, it seems that HSBC has done a pretty good deal because they received 13.5 billion Canadian dollars (which is about 10 billion US dollars). That’s about eight percent of HSBC group’s market cap. So that’s actually a good deal. If you look into the financial statements, they say they will make a net profit of more than 5 billion dollars on this sale above the book value1. And of course, selling the Canadian division will also shrink HSBC’s assets by a little less than 100 billion US dollars. So the sale provides a good boost to the capital ratio of HSBC as well.

Now let’s focus on what HSBC could do with the cash that it will receive.

One possibility is just to return it to the shareholders in a dividend. But that’s kind of boring, so what I would do is to follow the Go big or go home strategy and ‘go big’ in the core markets of HSBC.

HSBC’s core markets are firstly in Asia, where it’s the biggest bank in Hong Kong and also has significant operations in China, India, in the Middle East, and in some other Asian countries.

So what could we do with the cash (or the cash plus some extra borrowed money)?

The obvious takeover candidate would be Standard Chartered. Standard Chartered is another British bank that is based in London and is mostly operational in the Far East (and also partly in Africa and the Middle East). If HSBC were to buy Standard Chartered, there would be synergies of course in the London offices. I’m not sure if they would be allowed to take over the Hong Kong division of Standard Chartered because maybe HSBC would become too dominant in Hong Kong, but at least buying the Asian divisions would be a huge boost to HSBC in Singapore and it would also strengthen the bank in China, India and South Korea. Also in the United Arab Emirates and Asian economies like Malaysia, Indonesia, Vietnam. All those countries would contribute to a higher market share of HSBC and hopefully also to higher profitability and economies of scale.

I already mentioned that they should probably sell the Hong Kong division of Standard Chartered. And I guess they should also sell the African subsidiaries of Standard Chartered because I don’t see a lot of synergies there. And HSBC is mostly focused on Asia and not on Africa. So that would also bring in some extra cash because the 10 billion US dollars won’t be enough to buy standard Charters. But I think there’s a very clear business case to purchase Standard Chartered.

Another possibility would be to stay in the United Kingdom. So I found some research by Mordor Intelligence showing the market share of banks in the British market. You see that Lloyds is the clear market leader while HSBC is only the fourth largest retail bank in the UK (together with Santander UK). So a possible takeover target would be NatWest, which is the parent company above Royal Bank of Scotland – which is currently the third largest bank in Britain. Together with HSBC, they would be about as large as Lloyds Banking Group. So they would be the first or second largest bank in the United Kingdom. This [acquisition] would definitely provide some economies of scale on its British home market and would be quite easy to integrate. I think that deal makes a lot of sense also from a business perspective. Compared to Standard Chartered, where you would need to do a lot of divestments and integration in a lot of markets, the NatWest acquisition would be quite simple in terms of geography. You would also only need the approval of the British authorities. So I think that makes a lot of sense as well.

And then finally, thinking out of the box, we could also look at Credit Suisse. I wouldn’t suggest to buy the entirety of Credit Suisse, although its market cap is so low that with $10 billion you could almost buy the entire bank.

But what is probably a better idea is if HSBC would buy the Asia Pacific operations and maybe also the Middle Eastern operations of Credit Suisse. So I guess you don’t need the entire amount of 10 billion dollars. But by buying the Asia Pacific operations of Credit Suisse, HSBC could strengthen its wealth management in countries like China but also in Singapore and in other East Asian countries. And maybe also strengthen some of the investment banking operations in Asia. I think management of Credit Suisse would probably be happy to sell those divisions because then Credit Suisse can focus more on its core divisions in Switzerland and the Americas. While now CS are a global bank but they don’t have the size they need to be a real global bank.

So these have been three ideas. HSBC has sold its Canadian division for a lot of money. They could either buy Standard Chartered, or NatWest, or the Asian activities of Credit Suisse. I’m very curious of course what you think. Should they just return the money to their shareholders? Or should they buy other banks? Or do you have any other ideas? Maybe they should focus on share buybacks.

As always, you can reach me by mail at jan.musschoot@finrestra.com. Or you can find me on Twitter, I’m @janmusschoot or you can connect with me on LinkedIn.

This has been another episode of the Finrestra podcast. Thanks a lot for listening and till next time!