The Swiss National Bank's Decision Was Like A 'Nuclear Explosion'

The casualties just keep rolling in.

After last week’s shocker from the Swiss National Bank to remove the franc’s peg against the euro, many currency dealers saw huge sums of money walk out the door.

And now according to Bloomberg’s Elena Logutenkova and Jeffrey Vögeli, Credit Suisse and Saxo Bank have warned that the sudden currency swing may hurt profit.

Via Bloomberg:

“The full force of the decision won’t be known for months and is ‘closer to a nuclear explosion than a 1,000-kilogram conventional bomb,’ Javier Paz, senior analyst in wealth management at Aite Group, said in an email Tuesday. ‘The aftermath is like a black hole that can suck massive amounts of credit from currency trading as we have known it.'”

Credit Suisse is Switzerland’s second-largest bank.

In a note last Thursday, Morgan Stanley’s Huw van Steenis wrote: “We estimate a 10% appreciation vs $US/€/£ may lead to ~14-16% EPS impact. So moves today (15% against major currencies) mean we estimate CS prima facie may see a 21-24% reported EPS fall.”

Credit Suisse will report fourth quarter and full-year results on February 2.

The bank’s profits more than doubled in the third quarter to 1.03 billion Swiss francs ($US1.17 billion), after posting a net loss of $US779 million in the second quarter due to litigation costs. In the fourth quarter of 2013, its adjusted net income rose 11% from the previous quarter to $US1.462 million.

UBS, Switzerland’s largest bank, has not yet commented on the impact of the franc’s surge, according to Bloomberg.

Saxo Bank, a Danish bank, said some of its clients may lose undisclosed amounts of money because they may not be able settle unsecured amounts, Bloomberg reports. In a statement, the bank’s global head of finance and operations, Steen Blaafalk, said it is seeing a flood of new clients “after the Swiss situation has affected other players.”

Blaafalk told Bloomberg that he saw it coming back in September, and increased clients’ margin requirements for the franc. The bank will now require clients who have leveraged accounts in franc to increase their protections.

Over the weekend an entire hedge fund shut down after being on the wrong side of the franc trade, and the largest currency broker in the US got a $US300 million lifeline after suffering heavy losses, while large banks from Citigroup to Deutsche Bank lost millions.

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