Geopolitical Risk Management in Banking: A Strategic Shift with Investment Implications

In an era defined by U.S.-China tensions, Middle East volatility, and a resurgence of protectionism, banks are redefining their strategies to navigate a fractured global landscape. At the heart of this divergence lies a critical question: Should institutions prioritize cost-cutting to boost short-term efficiency, or invest in geopolitical expertise to hedge against long-term instability? HSBC's recent decision to disband its geopolitical risk management team starkly contrasts with the expansion efforts of JPMorgan Chase and Goldman Sachs, offering investors a compelling case study in strategic resilience versus vulnerability.

HSBC's Cost-Cutting Gambit: Efficiency at a Potential Cost

HSBC, under CEO Georges Elhedery, has embarked on an aggressive $1.8 billion cost-cutting plan by 2026, including the dissolution of its geopolitical risk management team. This move, impacting fewer than 10 roles across Asia and Europe, aligns with the bank's broader refocusing on high-margin markets like Asia and the Middle East. While the strategy has driven a 5.2% dividend yield and a P/E ratio below historical averages, it raises concerns about HSBC's ability to advise clients on emerging risks.

The bank's rationale is straightforward: streamlining operations to allocate resources to core strengths. HSBC has sold non-core assets, such as its German fund administration subsidiary, and is closing its U.S. business banking division. However, the geopolitical team's disbandment contradicts the growing relevance of such expertise. As JPMorgan Chase notes in its inaugural Center for Geopolitics report, “Tectonic shifts in global supply chains and U.S.-China dynamics are no longer peripheral—they are central to boardroom decisions.” Without dedicated geopolitical analysis, HSBC risks lagging in a market where clients increasingly demand strategic foresight.

JPMorgan and Goldman Sachs: Investing in Geopolitical Foresight

JPMorgan Chase has taken the opposite approach, launching the Center for Geopolitics in 2025 under former Pentagon official Derek Chollet. This initiative, backed by a $4.4 trillion asset base and high-profile advisors like Condoleezza Rice, provides clients with tailored insights on AI, supply chain realignment, and Middle East dynamics. The bank's Q2 2025 earnings highlighted a 36% surge in equities trading revenue, driven by demand for hedging tools in volatile markets.

Goldman Sachs, meanwhile, has turned geopolitical turbulence into a competitive advantage. Its trading division capitalized on U.S.-China trade tensions, with Fixed Income, Currency, and Commodities (FICC) revenue rising 9% year-over-year. The firm also expanded into high-margin private credit and alternative investments, targeting 20% annual growth through 2027. CEO David Solomon emphasized that “volatility equals volume,” positioning Goldman to profit from market chaos while maintaining a 20.5% net profit margin.

Both banks are leveraging AI to enhance decision-making. JPMorgan's GS AI assistant and Goldman's Cognition Labs partnerships underscore their commitment to innovation, enabling faster, data-driven responses to geopolitical shocks.

Strategic Contrasts: Short-Term Gains vs. Long-Term Resilience

HSBC's cost-cutting has boosted short-term shareholder returns—its $3 billion share buyback program and 317% Q1 pre-tax profit jump have attracted income-focused investors. However, the lack of geopolitical expertise could erode client trust in a world where risks like AI-driven cyberattacks or Middle East conflicts disrupt markets overnight.

Conversely, JPMorgan and Goldman's investments in geopolitical advisory services align with a client-centric future. JPMorgan's Center for Geopolitics and Goldman's AI-driven risk models position them as partners in navigating uncertainty, potentially securing long-term market share. While these strategies come with higher costs, they mitigate the risk of being blindsided by geopolitical events—a vulnerability HSBC's leaner structure may struggle to address.

Investment Implications

For investors, the contrast between HSBC and its peers offers a nuanced trade-off:
- HSBC is a compelling value play, with a 5.2% dividend and a P/E ratio of 8.5x (as of July 2025). However, its strategic bets on Asia and the Middle East may falter if geopolitical tensions escalate beyond its capacity to respond.
- JPMorgan Chase and Goldman Sachs are better positioned for long-term growth, with JPMorgan's Center for Geopolitics and Goldman's high-margin private credit divisions offering resilience in volatile markets. Both firms have outperformed HSBC in recent quarters, with JPMorgan's ROE at 14.8% and Goldman's at 12.8%.

Conclusion

As geopolitical risks become a defining feature of the 21st century, banks must choose between short-term efficiency and long-term adaptability. HSBC's cost-cutting strategy may deliver immediate returns but risks leaving it exposed to the very uncertainties it seeks to avoid. JPMorgan and Goldman, by contrast, are betting on a future where geopolitical expertise is a core asset. For investors, the choice hinges on their risk appetite: HSBC for income, and JPMorgan/Goldman for growth in an increasingly unpredictable world.

In the end, the banks that thrive will be those that recognize that geopolitics is not a backdrop to business—it is the stage.