The Real Winner of the Kremlin's war won't be Russia or Ukraine

"Buy at the sound of cannons and sell at the sound of trumpets." 

The old Wall Street adage says to buy when stocks plummet at the outbreak of war and sell when stocks rise as hostilities end. Buying low and selling high has long been a fundamental financial strategy particularly as it relates to gauging wartime market sentiments. And where some might hear the drums of war beating and jackboots ringing on cobblestones, others hear only the sound of cold, hard coin clanging into their coffers.

For the former, war is hell. But for the latter, like Napoleonic Wars era British banker Nathan Mayer Rothschild - to whom this cannons maxim is attributed - and some of today's largest financial firms like BlackRock, Vanguard, and J.P. Morgan; war is one hell of an opportunity - one hell of an opportunity to make a whole lot of money. 

In 2014, as investors responded to the Kremlin's annexation of Crimea by offloading their shares in Russian companies, BlackRock's CEO Larry Fink told the Sunday Times that the market wouldn't tolerate such a violation of international law. "The marketplace has said that if you play these games, you are not going to have our capital," Fink said. 

The House Always Wins

Just days before this statement, though, as Russian soldiers fired warning shots and threatened to shoot hundreds of unarmed Ukrainians, BlackRock's Head of Emerging Markets Sam Vecht admitted that the firm was making like Rothschild and buying up Russian stocks on the cheap. "We are using the opportunity of some of the very sharp market moves this morning to accumulate some extra stock in Russian positions that we think may be oversold and are fundamentally attractive," Vecht told investors.

And accumulate some extra stock they did. On the day of Russia's February 24, 2022 invasion, BlackRock's clients held more than $18.2bn in Russian assets. According to a Bureau of Investigative Journalism report, BlackRock "invested 9% of a $960m hedge fund in Russian shares" the month preceding the invasion." The firm then "spent $16m on shares in the Russian gold miner Polymetal the day after Russian tanks moved into Ukraine," making BlackRock Polymetal's then second-largest shareholder. 

After doubling its holdings, the firm suspended all further purchases of Russian assets just three days later on February 28, 2022. In a letter to shareholders on March 24, 2022, Blackrock's chief hailed the unprecedented "economic war" being waged in support of the Ukrainian people. In the eight years before Fink enlisted in this financial war effort though, while war crimes by Kremlin occupiers were being committed in Crimea, BlackRock clients were earning dividends from the firm's holdings in several flagship Russian companies partially owned by the Russian state - including Gazprom, Sovcomflot, Rosneft Oil, Sberbank of Russia, VTB Bank, Transneft, and Alrosa. 

Profiting From Bloodsheed

But BlackRock is not the only major private equity or financial firm investing in Russian state-affiliated assets or companies through which the Kremlin is funding its war of aggression in Ukraine. Other Western firms like Vanguard, Capital World Investors, and Charles Schwab all own shares in Russian oil-shipping giant Sovcomflot as well as in Western companies still operating in Russia, including oilfield behemoth SLB (Schlumberger Ltd) of which BlackRock is also a shareholder. Indeed, some of these firms' top holdings are in U.S. companies still doing business in Russia like PepsiCo, Procter & Gamble, and Philip Morris International, among others. 

Sounds of cannons or sanctions or not, there will always be those among us who will look straight past the bloodshed, the crimes against humanity, the destruction, and the litany of other horrors associated with war and see only piles of money. 

There are piles of money to be made on cannons, for starters. Be it on the manufacturing of cannons; the marketing and selling of cannons; or the replacement of cannons due to combat losses, there are stacks of cash to be had when it comes to cannons. Just ask the cash stacks counters at BlackRock. They know all that there is to know about cannon-related money flows. A 2019 report by the nonprofit organization Facing Finance, incidentally, found that the combined investment of ten European banks with some of the highest investments in eleven global arms companies was €24.2 billion. It then found that BlackRock's investment in those same companies was €32.6 billion - "far more than all ten European banks combined."

War is Real Good For Business

As one (presumably now former) BlackRock recruiter rather unabashedly informed one of O'Keefe Media Group's undercover reporters in June 2023, "War is real [expletive] good for business." The recruiter then gave the reporter a quick lesson on how the Kremlin's war was a moneymaker, a "fantastic" opportunity for profit: "Ukraine is good for business, you know that right? Russia blows up Ukraine's grain silos and the price of wheat is going to go mad up. The Ukrainian economy is tied very close to the wheat market, global wheat market. Prices of bread, you know, literally everything goes up and down. This is fantastic if you're trading. Volatility creates opportunity to make profit."

Damn the torpedoes, in other words. Full speed ahead to the baguette aisle. For those trading in cannons, or wheat, or in Russian and Ukrainian debt securities, for instance, the sound of the cannons heralds the sound of exploding wallets. 

But such profits are not limited to the sound of cannons. The sound of trumpets also foretells unprecedented opportunities for such war profiteers. According to a December 2022 World Bank estimate, "The postwar reconstruction of Ukraine will cost about 500-600 billion euros ($525 billion-$630 billion)." And the disaster capitalists, as author Naomi Klein has coined such profiteers, started queuing up as the cannons fired their first salvos. In September 2022, CEO of BlackRock, Larry Fink, first met with President of Ukraine Volodymyr Zelenskyy to discuss Ukraine a reconstruction fund and driving investment into the Ukrainian economy. 

By November 2022, the Ukrainian Ministry of Economy (MoE) and BlackRock Financial Markets

Advisory (FMA) had signed a Memorandum of Understanding "whereby BlackRock FMA will provide advisory support for designing an investment framework, with a goal of creating opportunities for both public and private investors to participate in the future reconstruction and recovery of the Ukrainian economy." Since then, BlackRock,  J.P. Morgan Chase, and McKinsey & Company have formed a pro-bono collaboration to establish a Ukraine Development Fund aimed at raising postwar reconstruction funds. 

Over an early morning breakfast at the World Economic Forum in Davos, Switzerland this past month on January 19th, Fink called Ukraine "a beacon to the rest of the world of the power of capitalism." He went on to say that "those who truly believe in a capitalistic system will be flooding Ukraine with capital." To add to such sentiments, CEO of Goldman Sachs, David Solomon said, "There is no question that as you rebuild, there will be good economic incentives for real return and real investment." 

When the cannons are finally silent in Ukraine, and when the trumpets finally sound, it will coincide with the fluttering of cash machines on Wall Street.