SWISS FRANK 'NUCLEAR EXPLOSION' SPREADING, CREDIT SUISSE, SAXO HURT

Credit Suisse Group AG (CSGN) and Saxo Bank A/S joined an increasing number of European financial companies warning that the Swiss central bank’s surprise decision to abolish its currency ceiling may dent earnings.

Credit Suisse, Switzerland’s second-biggest bank, indicated Monday that currency swings may hurt profit. Denmark’s Saxo Bank said some clients might not be able to settle unsecured amounts, which might cause undisclosed losses.

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 e-mail Tuesday. “The aftermath is like a black hole that can suck massive amounts of credit from currency trading as we have known it.”

Citigroup Inc. (C), Deutsche Bank AG and Barclays Plc (BARC)suffered about $400 million in cumulative trading losses, people familiar with developments said last week. At Morgan Stanley (MS), owner of the world’s largest brokerage, Chief Financial Officer Ruth Porat said the effect was minimal.

“We made money the last few days and we’ve helped our customers, but it hasn’t had a big impact on us,” Bank of America Corp. Chief Executive Officer Brian T. Moynihan told CNBC in an interview. “It caught everybody by surprise.”

‘No Idea’

Thomas Peterffy, the billionaire chairman and chief executive officer of Greenwich, Connecticut-based Interactive Brokers Group Inc., said that he expects banks’ losses from the currency swings to increase as customers can’t repay loans. Interactive Brokers disclosed on Jan. 16 that it could suffer as much as $120 million in losses from clients who got the Swiss franc trade wrong. Peterffy said leverage may increase the losses at banks.

“To the extent that banks dealt on 2 percent margin, the losses must be humongous,” Peterffy, 70, said in a telephone interview. “In the ensuing weeks and months, they are hoping to collect. They don’t always.”

The franc soared as much as 41 percent against the euro and strengthened against other currencies after the Swiss National Bank scrapped the three-year-old policy on Jan. 15. The Swiss currency climbed on Tuesday amid a continuing fallout.

WEF Meeting

The global turmoil comes as global leaders are meeting at the World Economic Forum in Davos, Switzerland. Participants include Barclays CEO Antony Jenkins, Deutsche Bank co-CEO Anshu Jain and UBS Group AG (UBSG) Chairman Axel Weber.

Citigroup, Deutsche Bank, Barclays and UBS are the world’s largest four currency dealers, accounting for almost 54 percent of the global foreign-exchange business, according to Euromoney Institutional Investor Plc’s annual survey. Bank of America, Morgan Stanley and Credit Suisse ranked 7th, 11th and 12th.

All of the largest currency dealers have lost veteran traders since global authorities began investigating claims that benchmark rates were being manipulated. Citigroup fired its European head of foreign-exchange spot trading last year, and Deutsche Bank dismissed several currency traders amid internal reviews related to the probes. Barclays and UBS AG (OUBS) have each suspended about half a dozen employees.

Earnings Impact

In Switzerland, some banks see the appreciating franc squeezing earnings because the currency makes up a larger share of costs than revenues.

“Swiss bank earnings will be significantly lower,” said Andreas Venditti, a Zurich-based analyst at Vontobel Securities AG, with a hold recommendation on Credit Suisse and a buy rating on UBS shares. “The impact will depend on how quickly the companies can react and how in-depth their actions will be. The whole thing isn’t over yet.”

Julius Baer Group Ltd. (BAER), Switzerland’s third-largest wealth manager, said it plans to take “appropriate measures” to defend profit from the stronger franc. The bank didn’t suffer losses in the two trading days after the SNB move, it said.

UBS, Switzerland’s biggest bank, hasn’t commented on any consequences from currency swings. Credit Suisse said in the statement that currency swings may hurt profit depending in part on “any offsetting management actions.”

FXCM, Alpari

With dealers around the world struggling to cope with a surging franc, the U.K.’s Financial Conduct Authority, the financial markets regulator, has written to about 90 brokers asking how they were affected by last week’s decision, a person with knowledge of the matter said.

IG Group Holdings Plc (IGG), a London-based online trading company, said in a statement that a “few hundred clients” were hurt by the SNB’s decision, with losses not seen exceeding 30 million pounds ($45 million). While the company “remains on track to meet revenue expectations” in the full year, they will be “negatively impacted by client debts associated with the Swiss franc movement,” the firm said.

Alpari (UK) Ltd., a foreign-exchange broker, has gone into administration after failing to find a company willing to buy it out.FXCM Inc. (FXCM) the largest U.S. retail foreign-exchange brokerage, had to get a $300 million cash infusion after losses threatened its ability to comply with capital rules.

At Saxo Bank, clients will be required to set aside even more to protect against losses on leveraged franc accounts, according to a letter addressed to customers.

“We did see this coming,” Chief Financial Officer Steen Blaafalk said in a telephone interview. “We warned clients in September, when we set our margin requirements on the franc up. Today I only wish that we had raised it further.”

Bloomberg