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Swiss Shocker Triggers Gigantic Losses For Banks, Hedge Funds And Currency Traders

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Trading - Public DomainThe absolutely stunning decision by the Swiss National Bank to decouple from the euro has triggered billions of dollars worth of losses all over the globe.  Citigroup and Deutsche Bank both say that their losses were somewhere in the neighborhood of 150 million dollars, a major hedge fund that had 830 million dollars in assets at the end of December has been forced to shut down, and several major global currency trading firms have announced that they are now insolvent.   And these are just the losses that we know about so far.  It will be many months before the full scope of the financial devastation caused by the Swiss National Bank is fully revealed.  But of course the same thing could be said about the crash in the price of oil that we have witnessed in recent weeks.  These two “black swan events” have set financial dominoes in motion all over the globe.  At this point we can only guess how bad the financial devastation will ultimately be.

But everyone agrees that it will be bad.  For example, one financial expert at Boston University says that he believes the losses caused by the Swiss National Bank decision will be in the billions of dollars

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, a person with knowledge of the matter said last week. Deutsche Bank lost $150 million and Barclays less than $100 million, people familiar with the events said, after the Swiss National Bank scrapped a three-year-old policy of capping its currency against the euro and the franc soared as much as 41 percent that day versus the euro. Spokesmen for the three banks declined to comment.

And actually, if the total losses from this crisis are only limited to the “billions” I think that we will be extremely fortunate.

As I mentioned above, a hedge fund that had 830 million dollars in assets at the end of December just completely imploded.  Everest Capital’s Global Fund had heavily bet against the Swiss franc, and as a result it now has lost “virtually all its money”

Marko Dimitrijevic, the hedge fund manager who survived at least five emerging market debt crises, is closing his largest hedge fund after losing virtually all its money this week when the Swiss National Bank unexpectedly let the franc trade freely against the euro, according to a person familiar with the firm.

Everest Capital’s Global Fund had about $830 million in assets as of the end of December, according to a client report. The Miami-based firm, which specializes in emerging markets, still manages seven funds with about $2.2 billion in assets. The global fund, the firm’s oldest, was betting the Swiss franc would decline, said the person, who asked not to be named because the information is private.

This is how fast things can move in the financial marketplace when things start getting crazy.

It can seem like you are on top of the world one day, but just a short while later you can be filing for bankruptcy.

Consider what just happened to FXCM.  It is one of the largest retail currency trading firms on the entire planet, and the decision by the Swiss National Bank instantly created a 200 million dollar hole in the company that desperately needed to be filled…

The magnitude of the crisis for U.S. currency traders became clear Friday when New York-based FXCM, a publicly traded U.S. currency broker, and the largest so far to announce it was in financial trouble after suffering a 90-percent drop in the firm’s stock price, reported the firm would need a $200-$300 million bailout to prevent capital requirements from being breached. Highly leveraged currency traders, including retail customers, were unable to come up with sufficient capital to cover the losses suffered in their currency trading accounts when the Swiss franc surged.

Currency traders worldwide allowed to leverage their accounts 100:1, meaning the customer can bet $100 in the currency exchange markets for every $1.00 the customer has on deposit in its account, can result in huge gains from unexpected currency price fluctuations or massive and devastating losses, should the customer bet wrong.

Fortunately for FXCM, another company called Leucadia came riding to the rescue with a 300 million dollar loan.

But other currency trading firms were not so lucky.

For example, Alpari has already announced that it is going into insolvency

Retail broker Alpari UK filed for insolvency on Friday.

The move “caused by the SNB’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity,” Alpari, the shirt sponsor of English Premier League soccer club West Ham, said in a statement.

“This has resulted in the majority of clients sustaining losses which 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 that it has entered into insolvency.”

And Alpari is far from alone.  Quite a few other smaller currency trading firms all over the world are in the exact same boat.

Unfortunately, this could potentially just be the beginning of the currency chaos.

All eyes are on the European Central Bank right now.  If a major round of quantitative easing is announced, that could unleash yet another wave of crippling losses for financial institutions.  The following is from a recent CNBC article

One of Europe’s most influential economists has warned that the quantitative easing measures seen being unveiled by the European Central Bank (ECB) this week could create deep market volatility, akin to what was seen after the Swiss National Bank abandoned its currency peg.

“There was so much capital flight in anticipation of the QE to Switzerland, that the Swiss central bank was unable to stem the tide, and there will be more effects of that sort,” the President of Germany’s Ifo Institute for Economic Research, Hans-Werner Sinn, told CNBC on Monday.

As I have written about previously, we are moving into a time of greatly increased financial volatility.  And when we start to see tremendous ups and downs in the financial world, that is a sign that a great crash is coming.  We witnessed this prior to the financial crisis of 2008, and now we are watching it happen again.

And this is not just happening in the United States.  Just check out what happened in China on Monday…

Chinese shares plunged about 8% Monday after the country’s securities regulator imposed margin trading curbs on several major brokerages, a sign that authorities are trying to rein in the market’s big gains. It was China’s largest drop in six years.

Sadly, most Americans have absolutely no idea what is coming.

They just trust that Barack Obama, Congress and the “experts” at the Federal Reserve have it all figured out.

So when the next great financial crisis does arrive, most people are going to be absolutely blindsided by it, even though anyone that is willing to look at the facts honestly should be able to see it steamrolling directly toward us.

Over the past couple of years, we have been blessed to experience a period of relative stability.

But that period of relative stability is now ending.

I hope that you are getting ready for what comes next.

  • Hillbilly

    Beans, Band-aids and Bullets. I hope everybody has enough. Good luck to you my friends.

    • RageHard84

      Can I stock up on crossbow bolts instead? Those are re-usable.

      • bob@nas.gov

        No, you cant RageH – never bring a crossbow to gun fight!

        • RageHard84

          Okay I get you. Even though crossbow is cheaper, it doesn’t help in a gun fight.

          • Crashed_and_Burned

            You must be talking about a toy. My cross bow cost more than a Glock. Not to suggest I don’t own a Glock too.

          • RageHard84

            Did you take into account the cost of continually buying bullets and reusable crossbow bolts?

    • Crashed_and_Burned

      I have a compound cross bow. It’s a near silent killer. I can never buy enough bolts and broad heads. Soft body armor will not stop it.

  • Mike Smithy

    I love the smell of collapsing economies in the morning. I for one am not shedding any tears for the TBTF banks and currency manipulators for they will reap the whirlwind.

    • Gay Veteran

      “…I for one, am not shedding any tears for the TBTF banks and currency manipulators, for they will reap the whirlwind.”

      unless us tax slaves are forced to bail them out yet again

    • jmstalk

      The golden parachutes are opening as we speak.

    • Priszilla

      Next round. 1tn EUR QE in Europe.

  • K

    Now add Russia is dumping the dollar, at a pretty fast rate. If China should join in, let us just say, not good at all. People asked me last year, did I think that was the year. I said maybe, but I really did not think so. Why? Everything was not yet in place. Well the things that were not in place last year, they are now.

    • NowAlive

      China has their own problems. Should they try a dollar decouple they’d crash as well. They have a giant portfolio of dollars. They are really seeing growth collapse. Destroying the value of one of their largest investments would be suicide. That’s like buying an oz of gold for $1300 and then trying to sell it for $2. Not smart….The dollar dumping by Russia can also be shown to have been a catastrophe for them. They are dumping dollars because they need the money to maintain stability because of sanctions. From a propaganda point, it also let’s TPTB in Russia sound like they’re sticking it to the US. Contrarily while the Russians starting dollar dumping to shore up the ruble, the dollar rose in value, further harming Russia’s investment portfolio.

      • Gay Veteran

        the Russians are selling U.S. securities to back back roubles when the roubles are cheap to buy, pretty smart. and of course they are also buying gold while it is on sale

  • chwa yazzz

    Hey Michael,

    You keep posting day after day how the economy and the entire global financial system is imploding. Well if that’s the case, why are the equity markets still significantly overvalued? Why is the US still the premier economic power? And most importantly, how is everything still running just fine?

    While you are an alarmist, I do believe this is a very slow and gradual shift. The BRIC’s are going to have a shadow alternative to the IMF and World Bank and Europe is up for grabs. Russia controls the natural gas and once Europe realizes they don’t need the US and has an incentive to go with an alternative NOTHING WILL CHANGE.

    Every incident such as this one is not a big deal… The Swiss are smart and want nothing to do with the Euro so they are abandoning it. What will it take to have the entire financial system have a correction? A major sell-off precipitated by more black swans that are way more powerful

    • Guest

      If it weren’t for the fact that nearly every financial market is manipulated the financial system would have come down long ago.

      I think Michael’s concern is waking as many people up as possible before this thing blows.

    • charles

      I hope Mike replies….but I believe the reason is as long as the US is the reserve currency and the $ used to price oil via opec…that’s why the us looks good and the rest of the globe looks like donkey doo….the fed, secret service, treasury are entrenched in central bank and if policies…so the black swan event will be coming from a policy shift that will lampoon the dollar…if that doesn’t happen then it’s at least 8 years of same Ole thing

    • rat28

      Mike is reading too much into negative news so everything he writes is about doom and gloom!

    • alan

      This is a good site and yes there is a lot of screwed up stuff going on out there. The collapse started in 2008 and is a work in progress. If it goes too quick someone gets nuked. The bankers want to steal everything not get nuked.
      Just sit back and watch, it will be an event of a life time!

    • Horiboyable .

      Equities are rising because Big Money has really no where to park their money. World wide interest rates are low or in negative territory. I can maybe see some pension funds collapse. Pension models rely on about 7 to 8 % interest but in this environment yields are very hard to find so I bet pension funds have had to take on more risky investments to stay afloat, like junk bonds in shale extraction and equities.
      If the current trend continues and the trickle from the Euro becomes a stampede and everyone heads for the exits at the same time and flee into the dollar; causing the dollar to rise then you are going to see all that cheap dough the feds been pumping out in the form of loans in USD (est 5 trillion) throughout the world explode. You could see an event that will eclipse anything you have read about and then the Euro is finished. Most Euro Govt is loaded to the gills with debt and they will not be able to weather this storm. You would have to be stupid to be holding Euro’s at the moment, they are only one event away from total collapse. I also note that all Euro countries have asked for their gold to be repatriated which tells me they are getting ready to fall back to their original currency’s.

      • SodThat

        I can confirm your comments about pension funds as mine has a shortfall and is asking us to raise our contributions, they’ve said their investments haven’t performed as expected.

        • Horiboyable .

          Unfortunately the very first asset class governments target for confiscation is pensions. They have already done this in Poland & Hungary. Exit the plan if you can. They have done it since Roman times and they will do it again.

          • SodThat

            Unfortunately it’s my work plan and it’s compulsory, I’ve been warning my work mates about the state the pension was in for sometime and have told them it may get confiscated, if it doesn’t get wiped out first that is, but they all think I’m nuts.

          • Horiboyable .

            People always do that, ignore and then stick their head in the sand. Look what is happening around us. Governments round the world just printing money, negative interest rates. Democracy destroyed in many countries. The USA Police using civil forfeiture on some very dubious crimes (The Army did that when Rome collapsed). Troika dictating their economic policy, Germany telling Greeks how to vote. Banks given MY money so they can keep their rigged game going and keep their generous bonuses going. The Euro will collapse and all the pain that the Greeks, Spanish and Irish have suffered will have been nothing.

    • SodThat

      Why are the equity markets still significantly overvalued? QE and stock buybacks.

      Why is the US still the premier economic power? The dollar is the world reserve currency that’s why, but this is slowly changing. Also the dollar only looks good because other currencies are doing so badly. In other words its current strength is not based on its own merits.

      How is everything still running just fine? Massive fraud, manipulation and lies. You may wish to learn from history.

      • jox

        Don’t forget the huge army of USA. With a military spending bigger that the next 10 countries together, and with more than 180 bases in the world, it’s the bully of the town that impose it’s rules.

    • Gay Veteran

      “…Why is the US still the premier economic power?….”

      that’s pretty funny when real median household income continues to decline along with the labor participation rate

  • Richard

    Wait till Obama tell the world tomorrow night that there going to raise corps. Taxes and the rich. Should be interesting on Wednesday mornings C.N.B.C report.

    • Guest

      Gary will love it!

    • K

      Consider the timing. If you wanted to raise those taxes for real. Would you wait for Republicans to control both houses? This administration is famous for looking like they are doing something. When in reality, they are doing nothing at all. The air war in Syria, is another example. Primarily two plane raids, using fighter bombers, that carry very limited munitions. Once again, look like you are doing something, when you are really not doing much of anything.

    • alan

      It will have some kind built in loop holes that apply to people over $100 million. But if your middle class and up you will see the tax hike, so you think it goes to the top but it doesn’t.
      The rules apply to us and the rich, not so much. Money is power and the bankers have all the power.

    • XSANDIEGOCA

      It all depends on the meaning of “rich”. I have a feeling if you have 100K in the bank, this administration thinks you are rich.

  • Guest

    It’s not that a majority trust the current management, it’s that they are financially illiterate

    • Mike Smithy

      Financially illiterate? Perhaps. Financially diabolical? Undoubtedly.

  • Bob332

    The NWO and their game of Diabolical Disorientation is nearing their goal.

  • DesertPaine

    A massively undervalued Swissy is not FXCM or Alaris’ fault. They are just who is left holding the bad when central bank shenanigans unwind. As this-all unfolds it is unlikely that those who caused the problems will be the ones who pay the price.

  • Kerris Llewellyn-Ravenhill

    As long as everyone plays the game everything is hunky dory, but the Swiss decided to save themselves, so I guess it’s now everyone for themselves. Time to take the rest of my cash out of the bank.

  • rymlianin

    “Special on canned goods and shotgun shells on aisle five.”

  • David Hammond

    Micheal – do you have a YouTube channel you like to visit in regards to all this?

  • Priszilla

    Bet against the franc …. and lost.
    Yes, that can happen in gambling.

    • alan

      Come on red 22, DOH! I need a bailout!

  • Priszilla

    German shops near the Swiss border experience a boom in business.

  • alan

    Something spooked them real good. They just came out maybe 10 days ago saying they would not leave the peg and blam! WTF?

    Germany just got back 120 tons of gold.

    • Mike Smithy

      You raise an interesting point. I am still perplexed as to how Germany managed to get any gold out of the NY Fed vault. I have a theory, although it is not a very good one. Knowing that Germany has previously taken a hard line position against Mario Draghi’s plan for European Union (EU) QE. Perhaps, Germany softened its position in exchange for repatriating some of its gold. Quid Pro Quo.

  • XSANDIEGOCA

    Well….up jumped the Black Swan!! No problem, Janet to the rescue!! Keep in mind, this is only what we see. I have a feeling some very big derivative chains are under a lot of stress. Maybe some Cyprus style seizing of bank accounts in the offing?

    • retired22

      I don’t think that will happen,it would cause a panic & a run on every bank in the world which would destroy the whole system.
      What they may try to do is attempt to couple the Dollar to some basket of commodities & manipulate the value of the dollar like Roosevelt did during the Great Depression,this was a gigantic swindle that hurt many people

  • chilller

    When it comes to money and its value, no one knows better than the Swiss. It’s their bread and butter. So when they throw in the towel you can bet your bottom dollar there’s something bad afoot!
    All the currency traders knew ECB QE was coming and what it would do to the Swiss Franc…unfortunately for them…so did the Swiss and they said “no more.”

  • jox

    Michael, there is something that surprises me on this blog lately. There are people that I have never seen before (and I’ve following the blog several years) comenting that Michael is an alarmist, and that everything on the economy is allright. People such as chwa yazzz (other nicks in other posts). First, it’s strange because normally when you don’t agree with the line of a blog you don’t follow that blog, you abandon it without a comment. And when I check the profile of those commenters, to read other comments they have written or to see for how long they are commenting, it seems that they are protected and you can’t see anything. Strange.

    I don’t like to be too suspicious, but I’m afraid that these people are infiltrating the blog to dismiss it’s contents.

    • K

      I am not Michael, but yes they are trolls. They come out in force on certain subjects more than others. But as we get closer to the breakpoint, there will be even more. The closer you get to the truth, the more that are assigned. They are here for the purpose of distracting.

      • Mike Smithy

        True. Just yesterday, I found out that George Soros paid $33 million dollars to media front groups which included paid bloggers among other things to fan the flames in Ferguson, MO.

        Michael’s blog is routinely infiltrated by shills pushing the “All is Wonderful” mantra. I suspect that many are paid operatives working for the TBTF banks and groups sympathetic to President Zero’s socialist agenda.

        • RalphEllison

          The fact that you look up to Rush Limbaugh evidences your ignorance of real shills.

          Limbaugh is the highest paid media shill for the Wall St./Big Business elite. His job is foment anger, racism and mistrust on the right and get these folks to the polls. They then vote in people who are even more in the pockets of Wall St./Big Business than the Democratic leadership.

      • NowAlive

        I’ve been seeing it a lot on Christian websites in general. It seems much worse lately. It’s one thing for a visitor who comes a few times, but you’re right…eventually they don’t come back. I’ve seen many many Christian news outlets though where the entire discussion has been hijacked by mean-spirited folks their to convince others of this or that. It makes you wonder where our tax dollars go? Are they paying for these people? How about large MSM? Are they hiring / contracting dissenters to counteract the conservative movement?

        • retired22

          You ain’t seen nothing until you try Yahoo News,a toxic propaganda mix of A.P.,AFP & Reuters.Their articles read like science fiction
          But you need to read the comments Yahoo receives to get the full impact of it all.You can’t believe the twisted cretins who show up there!

        • K

          Yes the U.S. government now has a ministry of propaganda. And yes it is taxpayer supported. It started when they embedded Government personnel in newrooms, to ensure fairness. It then blossomed into an agency. So yes we are all paying, to be lied to.

        • You do know that since the O has been in office we are now 7.5 Trillion dollars further in debt. There’s your source for all these shills & trolls who get paid. It’s our money being recirculated for their means to the end game. Wait until elections go into full gear. The amount of money that will be spent by the Left I wouldn’t doubt reaches 1 Trillion and it’s probably all our tax dollars regurgitated the the Demorats

        • RalphEllison

          It is the exact opposite. Right wing Astroturf organizations like Americans for Prosperity and American Crossroads have paid commenters who post anti- progressive, anti-Obama, and racist comments on virtually every political and social news article – even sports!

          Michael, keep up the great work.

      • Lennie Pike

        It is our job to ID these, and destroy them in debate.

        Confront their b.s. and challenge them in debate right here. They will lose the debate and we will win because the truth is on our side – it’s fun! It also brings more people on the fence to our side.

        The ignorant masses on the fence are the prize they are seeking and should be ours also – the way of the world. It is the reason this blog exists. Let’s Go!!!

    • Megalon

      Paid trolls are everywhere,on pretty much any news site,blog. Any time a conservative point is made you can bet they will be there. It is easy to spot them though and I just ignore them.

      They use ridicule,insults,make racist statements-anything to derail serious discussion of the issue at hand.They are basically using the the Cloward- Piven strategy of ‘no intelligent argument, use ridicule’.

      People make the mistake of engaging them and trying to reason with them-don’t, it is waste of time. You are not talking to a person with a point of view, you are talking to a pathetic slave in call center who is using a script.

      • Lennie Pike

        I respectfully disagree. These trolls should be engaged in debate and discredited not ignored because there are many ignorant people on the fence that frequent this site attempting to learn the truth and these trolls want them on their side. We need them on our side. This is the purpose of this blog.

        When good people stand by and do nothing against evil, the evil take over as they now have worldwide.

        These people should be fought on every level and not only here on The Economic Collapse Blog.

  • SodThat

    Currency war anyone???

  • NowAlive

    Excuse my ignorance but doesn’t the currency market work like most other markets, in this case? These aren’t derivatives. For every loss from the currency valuation change, there was a win. No money was actually lost, it was just transferred. Thus, if billions were lost, billions were made by other parties. A devaluing of the Euro isn’t necessarily a bad thing for Europe. I’m not talking about $1 trillion to buy a loaf of bread here. I’m just saying if the value of the Euro dropped by, say, a third, then European exports would become cheaper and exports would rise. It’s a basic economic principal.

    • retired22

      First off these are not billions of dollars off loses,they are billions of dollars of leveraged losses,big difference.Many of these funds are invested in derivatives to help insure against potential losses & these bets are also heavily leveraged.
      Their exports may be more competitive provided they can find overseas customers who aren’t broke & can afford their products!The whole system is a gigantic mess,one bad deal bouncing off another bad deal,impossible to disentangle without pulling the system down!

  • Mike Smithy

    I like your theory and it is plausible knowing that there was previously very little if any actual physical gold in the NY Fed vault.

  • eclecticmn

    They don’t call it speculation for nothing.

    I have a question. If some people lost gobs of money then who made gobs of money? There are two sides to every trade, correct?

    Someone said that the speculators are mad because they did not get to front run their clients this time.

  • Richard O. Mann

    Low on beans, bullets and band-aids. Bad thing is, am currently out of work and can’t afford to buy any more. Oh well. The worst that can happen is that I will die, and that is a blessing of the highest order.

    • jakartaman

      Go down fighting – all real men wil!!

  • alan

    Looks like the plunge protection team was in play today.

  • Jimbo

    A slightly alarming development in the UK. I was driving home one day last week and listening to the radio. During the commercial break, there was an announcement by the FSCS (financial services compensation scheme). A guy with a very calming voice explained that if you had money in a UK bank, it was guaranteed up to 85,000 per person and that in the event of a bank failure, you would normally receive your money within 7 days.

    I have heard this advertisement every day since then.

    Why all of a sudden have they started making these announcements? I have never heard them before?

  • GSOB

    Ephesians 2:3

  • Sandbagger

    Sadly most people the world over never see this sort of thing coming. Why should they? They have to concentrate on their own lives and don’t, unless they work in the financial sector, have time to dig for information on stuff like what their country’s currency is up to…even if they WERE so inclined.

    Most people don’t go looking for bad news. If they stumble upon a site like this, they write it off as a “conspiracy theory” site and like good little citizens who have learned their lesson, (brainwashed)they pooh-pooh what is being said. EVEN after a shake up like this, they persist in their illusion that sites like ECB are worthless!

    As we’ve learned from the comments about the passage of the “Affordable Care Act”, the manipulators benefit from the ignorance of the general populace.

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