By Douglas Gillison, Gertrude Chavez-Dreyfuss and Michelle Price
WASHINGTON/NEW YORK, March 12 (Reuters) - The day before U.S.-Israeli air strikes killed Iran's Supreme Leader on Saturday February 28, many Wall Street firms were expecting military action thanks to a growing industry of ex-military and national security advisors who were warning the signs were clear.
Around 6 p.m. ET that Friday evening, for example, geopolitical risk consultancy WestExec Advisors, advised clients, which include big
banks, that there was a 65% probability of military action that weekend, said its managing partner Nitin Chadda.
"It was clear to us that there was an intention to take some meaningful Iran military action," said Chadda, adding the firm had experienced an uptick in queries from financial clients and had been helping some banks plan scenarios for how the conflict may evolve.
A former senior Pentagon adviser, Chadda co-founded WestExec in 2017 with others including Antony Blinken who became Secretary of State in 2021. Its clients have included investment bank Lazard, private equity giant Blackstone, and Japan's Softbank, according to 2021 media reports based on Blinken's Senate disclosures at the time.
Demand for such geopolitical analysis surged as rising U.S.-China tensions under President Trump's first administration and the COVID-19 pandemic jolted supply chains and markets, and continued growing with the war in Ukraine.
The recent Middle East conflict, which has sparked volatility in stocks and bonds and a crisis in the oil market, has underscored the importance of those investments, especially given Trump's erratic foreign policy and propensity for U-turns.
Wall Street has been abuzz with briefings from ex-military and national security experts as investors and companies scramble for insight on issues ranging from Iran's stockpile of mines to the knock-on effects of the conflict for semiconductor manufacturing, said more than half a dozen other consultants, banking sources and investors.
"What you're really seeing from the financial industry is how national security and economic security have been merging over the last few years, and that is accelerating," said Amy Mitchell, founding partner at geopolitical consultancy Kilo Alpha Strategies who was previously a senior Pentagon adviser.
LOOKING FOR 'TRIPWIRES'
The strikes followed a three-week round of U.S.-Iran negotiations aimed at curbing the Islamic Republic's nuclear ambitions during which Trump threatened to use force and the U.S. massively boosted its military presence in the Gulf.
Negotiations wrapped up that Thursday with no sign of a breakthrough, but Omani mediators said there had been progress and that the two sides would resume talks in coming days.
Some doubted that would happen. While WestExec had no access to U.S. war plans, executives there sensed growing frustration from people close to the discussions, while other clues pointed to an imminent strike, said Chadda.
Among them was what he characterized as a "last ditch" Washington visit by Oman's foreign minister that Friday.
Chad Sweet, a former CIA officer and CEO of The Chertoff Group, a global advisory firm with financial clients, said the arrival of the USS Gerald R. Ford aircraft carrier in Israel early Friday was another clear sign.
Others pointed to reports that the U.S. had allowed some embassy staff in the region to leave.
"That was one of the final major trip wires,” said Jay Truesdale, CEO of TDI, a global advisor on geopolitical strategy.
The firm had already explained to clients, including hedge funds, traders, shippers, and industrials, that they should monitor indications of potential government actions that reflect the war plan, said Truesdale, adding such information is gleaned from open sources.
"We knew that once the trip wires were triggered that the likelihood of military action within 24-72 hours dramatically increased."
Strange moves in U.S. Treasuries that Friday suggested some investors were betting on those signs.
Despite surprisingly hot inflation data that would normally drive investors to dump long-term Treasuries, traders were moving in the opposite direction, pushing yields on the benchmark 10-year Treasury note below 4%. Such a sharp move into the safe-haven asset would usually be triggered by an adverse macro event - or the strong belief that one was imminent.
Tom di Galoma, managing director of global rates trading at Mischler Financial, a boutique broker-dealer, said there was talk in the market that the movements may have been prompted by briefings from ex-military officials.
White House press secretary Karoline Leavitt said in an email statement that Iran posed an imminent threat and the strike was a courageous decision.
DEMAND FOR GEOPOLITICAL RISK ANALYSIS
Amid growing investor demand, JPMorgan, Bank of America, Lazard, Goldman Sachs and Deutsche Bank, among others, have launched their own geopolitical advisory operations in recent years, while others have invested in military and national security expertise.
In November 2022, Deutsche said it had hired the late former U.S. Secretary of State Henry Kissinger. Last year, Santander hired the former head of the British Army General Sir Patrick Sanders, to advise on its defense lending push.
Spokespeople for Deutsche Bank, JPMorgan and Santander declined to comment, while Goldman Sachs did not respond to a request for comment. A BofA spokesperson said its geopolitical department includes experienced national security and intelligence analysts.
As the conflict widens, investors are seeking situational updates, intelligence on shipping transit routes, the trajectory for oil prices, and the impact of the crisis on energy-sensitive industries, people said.
“It’s been 24/7, fielding very specific questions from clients across the spectrum, including investors and energy folks,” said Teddy Bunzel, head of Lazard’s geopolitical advisory business, which launched in 2022 and has several former military advisors including retired four-star Admiral William McRaven.
“Everyone is wondering – how does this end?”
(Additional reporting by Paritosh Bansal, Vidya Ranganathan, Caroline Valetkevitch and Laura Matthews; Editing by Nick Zieminski)
