By Chiara Albanese and Katie Martin
Swiss private bank Julius Baer Group was holding an executive
board meeting when news broke shortly after 0930 GMT that the Swiss
central bank had scrapped the limit on the franc that it has
defended vigorously for three years against the euro.
The Zurich-based bank immediately interrupted the meeting to
verify that the news was real; it was shocking enough for seasoned
Swiss National Bank-watchers to wonder, given the central bank's
repeated assurances that the cap was there to stay. Bank executives
hurried to arrange a conference call with clients, which
"thousands" dialed in to, said Burkhard Varnholt, chief investment
officer at the bank.
"It was a shock and caused a lot of questions," he said.
Julius Baer's total client assets amounted to 385 billion Swiss
francs at the end of October 2014. At the start of the Thursday 385
billion francs bought 377 billion dollars. Within half an hour of
the SNB's announcement, with the franc rocketing higher, it bought
around $435 billion.
For a time Thursday, the franc "was almost untradeable" said
Tony Botting, head of spot foreign-exchange trading at Crédit
Agricole.
The euro collapsed by around 30% in minutes in response to the
shock move by the SNB, an enormous move by any standards, but
particularly for a usually steady major currency. Citigroup, the
world's largest currencies-trading bank, said its trading volumes
in the franc were 50% larger than usual.
IG Group PLC, a London-based broker catering mostly to retail
traders, said in a statement Thursday that it was facing a negative
impact of up to of 30 million pounds ($45.6 million) from "market
and credit exposure" after the "sudden and extreme movement" in the
franc. The firm described the jerky market moves as a "market
dislocation."
"It's a pretty extraordinary move," said Paul Lambert,
London-based head of currency at Insight Investment, which oversees
$483.7 billion of assets. "We're not talking about a rarely traded
third-tier currency here."
The shock was necessary. Any clues in advance from the central
bank could have prompted "improper" trading, SNB President Thomas
Jordan said at a news conference Thursday.
Mark Astley, chief executive of Millennium Global, which manages
$14 billion of specialist currency funds, was hosting a breakfast
seminar when the news broke. Still holding his cup of coffee, he
reached for his mobile phone to check the euro's rate against the
franc. "The euro is trading below one!" he exclaimed as the euro
crashed to CHF0.85.
Under its now-abandoned policy, the SNB held the euro above 1.20
to the franc, a rate from which it rarely budged.
Toward the end of European trading hours Thursday, the Swiss
currency had steadied to 1.05 against the euro, still around the
franc's strongest point on record. Few are confident where the rate
will settle but most expect a calmer day in the office Friday.
"The market was struggling. for some time," said Mr. Botting at
Crédit Agricole. "Now the dust has settled the main question on
everyone's mind is: where to now?"
Tommy Stubbington in London contributed to this article.
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