Major world banks have already lost considerable monies from the surprise SNB decision to end the cap on the franc. Cumulatively, Citigroup Inc. (C), Deutsche Bank AG and Barclays Plc (BARC) are said to have suffered from $400 million in losses and analysts predict that this could be followed by others in next few days.
“The losses will be in the billions -- they are still being tallied,” said Mark T. Williams, an executive-in-residence at Boston University specializing in risk management. “They will range from large banks, brokers, hedge funds, mutual funds to currency speculators. There will be ripple effects throughout the financial system.”
Citigroup, the world’s biggest currencies dealer, lost more than $150 million at its trading desks while Deutsche Bank lost $150 million and Barclays less than $100 million.
“The banks’ losses aren’t large but what it does show is that they are still gambling by taking positions,” said Gordon Kerr, a former banker and consultant at London-based Cobden Partners, an adviser to governments. “Brokers that lost money will worry about being shunned by clients, which might pull liquidity.” Banks may also suffer because of prime brokerage services, which include activities such as securities lending, trade execution and cash management for hedge funds.
Swiss Banks
Swiss banks, which haven’t announced any losses so far, will probably also suffer in the longer term, said Arturo Bris, a professor at the Lausanne-based IMD business school. “The negative effects for the Swiss banks come in two ways,” Bris said. “First, it will reduce the flow of assets from the outside and will encourage the exit of Swiss money to other countries. Secondly, they will be hurt by the negative impact on the Swiss economy.”
“We’re just hearing about financial institutions now,” Philip Guarco, global head of fixed-income strategy at JPMorgan Private Bank. “Remember what happened back in 2009, when the dollar rallied? You actually had major corporates in Mexico and Brazil, where the treasury departments were taking positions in FX. So we haven’t heard the end of it yet.”