Swiss franc surge rocks currency brokers, burns banks

LONDON - The surprise surge in the Swiss franc left currency brokers and banks worldwide licking their wounds on Friday, with at least two brokers declaring insolvency and others warning of heavy losses.

Switzerland's central bank shocked foreign exchange (forex) and other financial markets on Thursday when it scrapped its three-year bid to stop the franc from strengthening.

Within minutes the franc strengthened by 30 percent, later settling to a 15 percent gain against the euro.

The shock waves were felt in currency markets across the globe and some brokers could not withstand the jolt.

In London currency broker Alpari UK -- sponsor of English Premier League football team West Ham United -- declared insolvency Friday after clients' losses linked to the sharp rise in the Swiss franc were passed on to the company.

The news, revealed in a statement, followed a similar announcement by Global Brokers NZ in New Zealand declaring "a total loss of operating capital".

And in New York leading forex broker FXCM said it "may be in breach of some regulatory capital requirements" after clients left it with losses of up to $225 million (194 million euros).

"The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity," Alpari UK said in a shock statement.

"This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us.

"This has forced Alpari (UK) Limited to confirm today... that it has entered into insolvency."

In Auckland, Global Brokers NZ announced it was closing after it sustained losses that meant it could no longer meet New Zealand regulators' minimum capital requirements.

FXCM shares were suspended by the New York Stock Exchange after they plunged nearly 90 percent in pre-market trade, due to the broker's admission that some clients lost heavily on the franc's big shift, and their accounts could not cover the losses.

Bloomberg later reported FXCM was in talks with Jeffries Group for a $200 million cash lifeline.

In London, IG Group announced that its losses arising from the matter would total up to £30 million (39 million euros, $46 million), but stressed its "extremely robust financial position".

Rival City Index meanwhile reassured clients that it had not suffered "any material impact".

And in New York shares Interactive Brokers lost 6.65 percent in early trade Friday after having warned that some clients had reported losses totalling around $120 million.

Banks burned
 
The Swiss central bank had been defending a floor of 1.20 francs to the euro for three years in an effort to protect Switzerland's vital export and tourism industries.

Many investors had been buying Swiss francs as a safe haven currency, pushing its value up and hurting the country's international competitiveness.

But with the European Central Bank expected to flood the market with euros next week, the Swiss central bank would have faced more pressure to defend the floor.

After dropping as low as low as 0.8517 francs against the euro, it has stabilised around the level of parity with the euro.

The Swiss surprise also wrong-footed a number of big banks.

British bank Barclays lost "tens of millions" of dollars according to a source who requested anonymity.

The bank, whose shares slumped 1.6 percent on Friday, declined to comment on its losses tied to the Swiss franc.

Deutsche Bank lost on the order of $150 million, according to a report by the Wall Street Journal. The German bank declined to comment when contacted by AFP.

source: www.abs-cbnnews.com

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