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UBS, Credit Suisse plunge after SNB abandons cap on swiss franc

Thursday, January 15, 2015 - 21:44
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UBS Group AG and Credit Suisse Group AG, Switzerland's largest banks, plummeted after the country's central bank unexpectedly abandoned its franc-euro ceiling. The franc surged.

[ZURICH] UBS Group AG and Credit Suisse Group AG, Switzerland's largest banks, plummeted after the country's central bank unexpectedly abandoned its franc-euro ceiling. The franc surged.

UBS shares fell as much as 16 per cent in Zurich and traded 11 per cent lower at 1:49 pm, the most since 2009.

Credit Suisse shares also lost as much as 16 per cent and traded 12 per cent lower. Julius Baer Group Ltd slumped as much as 23 per cent. The Bloomberg Europe Banks and Financial Services Index was little changed.

"Assets under management in euro and dollar are now plummeting of course," said Andreas Brun, an analyst at Zuercher Kantonalbank. "The biggest wealth managers are disproportionately exposed to that."

He noted that some currencies in Asia, where UBS and Credit Suisse have significant wealth management businesses, are pegged to the dollar. UBS is the world's biggest wealth manager, while Credit Suisse is ranked No 4, according to Scorpio Partnership.

The Swiss National Bank, led by Thomas Jordan, said in a statement today that it decided to give up the minimum exchange rate of 1.20 francs per euro, ending a three year-old policy that helped protect the country's economy from investors piling into the currency. The franc gained against the euro and the dollar after the decision.

The stronger franc could shave between 7 and 10 per cent off earnings, Citigroup Inc analysts Kinner Lakhani and Nicholas Herman said in a note about Julius Baer, Credit Suisse and UBS. They estimate that leverage ratios will "improve modestly" because of the SNB's decision.

Before today's decision analysts at JPMorgan Chase & Co said in a note that UBS, would be among lenders benefiting from an appreciating dollar. At the end of 2013, 34 per cent of invested assets at UBS's wealth management unit, which excludes the US and Canada, were in dollars.

Negative Rates The SNB said last month it will start charging 0.25 per cent on sight deposit account balances in excess of a pre-determined threshold to ease the pressure on the Swiss franc. UBS and Credit Suisse said at the time the decision wouldn't have any immediate effect on them.

In Thursday's decision, the central bank also lowered the interest rate on sight deposit account balances that exceed a given exemption threshold to minus 0.75 per cent from minus 0.25 per cent and moved the target range for the three-month Libor to between minus 1.25 per cent and minus 0.25 per cent from minus 0.75 per cent to 0.25 per cent, according to the statement.

The changes in the deposit rates mean it will now cost banks more to park their money in the SNB overnight.

"Because of the further lowering of the negative rates the cost of the measures to weaken the Swiss franc shift from the SNB to the banks," the Swiss Banking Association said in an e- mailed statement.

BLOOMBERG