Swiss turmoil spreads in Europe as Saxo, Credit Suisse hurt

[ZURICH] Credit Suisse Group AG and Saxo Bank A/S joined a chorus of European financial companies warning that the precipitous end to Switzerland's currency cap may dent earnings.

Credit Suisse, the country's second-biggest bank, indicated Monday that currency swings after the Swiss National Bank's surprise decision may hurt profit depending in part on "any offsetting management actions." It said the volatility has "not materially impacted" capital ratios, a measure of financial strength.

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 on 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, Deutsche Bank AG and Barclays Plc suffered about US$400 million in cumulative trading losses, people familiar with events said last week. At Morgan Stanley, which reported earnings on Tuesday, Chief Financial Officer Ruth Porat said the effect was "de minimis," or minimal.

The franc soared as much as 41 per cent against the euro and strengthened against other currencies after the central bank scrapped the three-year-old policy on Jan 15. That may squeeze earnings for Swiss banks because francs make up a larger share of costs than revenues for many of the country's lenders.

"Swiss bank earnings will be significantly lower," said Andreas Venditti, a Zurich-based analyst at Vontobel Securities AG. "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, Switzerland's third-largest wealth manager, said it plans to take "appropriate measures" to defend profit from the stronger franc. The bank said it didn't suffer losses in the two trading days after the SNB move.

UBS Group AG, Switzerland's biggest bank, hasn't commented on any consequences from currency swings since the Swiss central bank's decision.

Copenhagen-based Saxo Bank said it may incur losses because some clients don't have enough collateral to cover their losses from trading the franc. The lender said it will still be able to meet its regulatory capital requirements.

In the UK, IG Group Holdings Plc, a spread-betting company, expects losses from the spike in franc not to exceed 30 million pounds (US$45 million) after "a few hundred clients" were hurt.

The country's market regulator has written to about 90 brokers seeking information on possible repercussions from the franc moves, a person with knowledge of the matter said.

Alpari (UK) Ltd, a foreign-exchange broker that sought a rescue plan after it was buffeted by last week's market rout, has gone into administration after it failed to find a company willing to buy it out.

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