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Did The SNB Just Suffer The World's Biggest Daily Loss Ever?
Via Citi's Stephen Englander,
Why did SNB move?
The SNB viewed expected global policy divergence to have a more sustained and growing significance and that this would make maintaining the EURCHF floor more difficult. While there seems theoretically no ceiling on balance sheet growth, the costs of maintaining a policy growing assets 2bn CHF a day for potentially the next few years was unpalatable and did not outweigh the costs to growth for the risks they create shortfalls later.
Also the interest rate differentials that were in place. However large they look by conventional standards as a deterrent to long CHF positions, they have little impact when here is a fear of a jump move in currencies, Grexit or intense capital outflows from Russia or elsewhere.
How big a hit on reserves?
By our calculation the FX reserves portfolio on FX alone will have lost in the region of 60bn CHF, assuming EURCHF at 1.03 and USDCHF at 0.88. Though some of this is likely to have gained on bond holdings, as per our above example, this would be far outweighed by losses on FX.
From here, winding down the portfolio seems a fairly significant policy mistake and would probably only take place if the SNB can find a large pool of CHF sellers and EUR buyers – they now face the same issue that Asian reserve managers face when they diversify. The periods of time that they want to sell EUR is the period of time when everyone else wants to, so their actions just add fuel to the fire. This is because the SNB’s role and responsibility is for protecting the price outlook which by winding down the portfolio would get worse.
Is the strategy to drop peg forever or get the market short and restore peg?
This is a tricky question. There were a lot of lazy EURCHF longs and it was difficult to put on short EURCHF positions through options, so there was little likelihood that investors were positioned for this. The SNB may want to create a two-way market by raising the possibility that a peg would be restored. Unless they outright say ‘never, never’ which would mean ‘probably not immediately’ they may want that kind of speculation to be in place, and leave open the possibility of acting.
What does it say about ECB, Greek election, capital flight into Switzerland?
They may be seeing signs already that these are ramping up. Otherwise the incentive would have been to wait and see whether events transpired as negatively as they feared. It is unlikely we think that the ECB has tipped off the SNB in any formal way, but it is possible that they inferred from informal conversations which way the wind was blowing. The proximate driver of the move was likely the trends they were seeing in CHF buying, but they may have an underlying view that nothing was going to get better quickly from the point of view of the peg.
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#SNB #EURCHF Erstes Bild von der Unfallstelle pic.twitter.com/B2q5PYF7lO
— Nebelspalter (@Nebelspalter) January 15, 2015
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Real question is who told them to do this and why?
There's a high probability that whoever told them to do this begins with a Goldman and ends with a Sachs.
You are close........THEY own Goldman...they can now move trillions of "Their" money into a restored Swiss banking system with a stable currency that will serve as a "fiat" store of wealth as they get ready for the nxt cycle change......
Weigh to go Jean!!!!!
I Can Now See Short Term GOLD Run To $3000. , Before It Goes Much Higher...
Jean needs to be careful of temptation, as it looks like there will be plenty of Lindt (and all other export goods) sitting around Switzerland looking for a consumer.
Speaking of Hedgeless... do you suppose the Swiss hedged this move secretly?
Ja.
Oui.
Si.
Yep.
I think that many in Switzerland are smart enough to understand the dangerous environment they are in due to Draghi. It remains to be seen if they allow their bankers to further weaken the nation.
Jean and his fat friends may all end up with their heads on Swiss pikes, when it is all said and done.
I really enjoy watching the BofE take cover in all of this. Oceania has always been at war with Eurasia.
TARGET Just Closed All Canadian Stores.
Orders For US Exports Collapsing???
Good Luck With That High USD Paper Fiats Keynesian Thingy...
Now, the SNB (it trades as a stock at the swiss stock market, btw) may have lost CHF 60-70 bn today, but it will reprint them out of thin air - who cares? Apart from that, for sure one could have handled this way more professional - for instance gradually bringing the floor down . Swiss bankers were never smart , though. What they excel at is taking other people's money who are fleeing ( the nazis, or the irs, make your choice) and levering this money for profits out of thin air. If you hand over your money to a swiss bank, it's not you who is supposed to profit anyway. Even the crooked american TBTF banks are sort of innocent compared with a swiss bank...
The SNB distributes profits to cantons (federal states). Will they distribute losses as well?
There is no such thing as "insider trading" in f/x, and every trade that any CB does utilizes material non-public information. If they didn't manage a profit by front running their own announcement, then they should be strung up from lamp posts for criminal incompetence.
I think SNB is taking investment advice from Giselle.
Well ya gotta wonder about any country that sells cheese with holes in it.
AU $3000...
I doubt it. Not unless Goldman was ok with significant losses on it's FX positions.
You know the Squid's FX positions? Not the trades they recommend for the muppets, but their actual positions?
The Numbnuts VOTED Not To Own Their Physical GOLD, Feck Em...
When I watched that referendum go down in flames a strange feeling of calm came over me as I realized that the best you can hope for on this earth is that you gave someone the chance to improve something about their condition.
The Save Our Swiss Gold campaign was created by a small group of people who cared deeply about their country's long term health. They were ridiculed, denigrated and called ignorant for wanting the SNB reigned in with a mere 20% gold backing.
But they gave the Swiss people a chance. For that they deserve the thanks of every non-elite everywhere.
Sorloss Probably Raked In A Few Billion...
last week the DAX was acting like someone knew the SNB was going to do this
furthermore, this means the ECB is just dying and are running out of options
we have not seen the full consequences of this yet, it will take a few days to see how deep it goes, stay tuned and dont forget Greek's elections coming very soon
This article assumes the SNB did not hedge. Right.
Drama sells you know
Martin armstrong is the only one I ve read sometime back that wrote they should unpeg
Who is Martin Alarmstrong?
The answer is Bank for International Settlements
remember the gold referendum?
no to gold, becouse of the peg
yeah, swiss export AND usa exports, as if there were such a thing
Whata bout the cheeeezzzze?
The idea of "gains" or "losses" when it comes to a central bank balance sheet always struck me as puzzlingly irrelevant.
in the case of the fed it is absolutely irrelevant
Like they didn't front run themselves.
Loss. Who are you kidding ?
Can you lose "money" if you just whip the shit up?
Now think about this, what would have happened if the Swiss DID back the Franc with GOLD and then did this !
Food for thought...
WW3 would've started today
Germany and France will bomb Switzerland?
And we just finished removing the explosives from the last of the bridges a few months ago... time for the MoD to pull a Chucky Schumer about-face and tell the sappers to "get (back) to work..."
The only question now is does Draghi say : Message received ...next week.
More like a drawdown than a loss, is my bet
We can't go 12 hours without a new explosion, can we?
I've been waiting for the other shoe to drop since mid-2009 and I feel like I'm crying wolf every time I yell, "This is it you guys!" to all my eye-rolling friends. But I think this is it you guys?
<eyeroll>
I lost my friends over the past few years with my crazy calls and belief that 'this is it.'
Friendless, maybe, but ever confident in myself that when the tough times come, I was way ahead of my time and am prepared.
Thx ZH.
You're not alone...
Nutter ;)
You have eye rolling friends... Lucky.
I have been voted off the island. Not a team player.
Ancient Chinese proverb:
"The nail that sticks out gets pounded down."
Champaign will be flowing in The Hamptons tonight. I can't believe how this non-event is being pushed in the media. There is nothing shocking about any of this. A little peek behind the curtain and it will become clear.
I wish I could lose that much in one day....and still live to tell about it...
For them it is all funny money.
Someone is taking a real beating somewhere.
Watch for bubbles on the water surface...
Buffetts bathtub?
I hate nailguns..hell I dont like staplers
Russia to Shift Ukraine Gas Transit to Turkey as EU Cries Foul
Watch France.
To me this is as much of a political statement as it is a financial one. The Swiss seem to be turning their backs on the EU/USSA alliance.
And Breaking News Headlines of the Day
Oscar Nominations Announced...THE LIST...
Oprah's 'Selma' shut out of directing, screenplay, acting categories...
THUMBS DOWN: Roger Ebert Documentary Snubbed...
'D*ck poop' nominated...
And I thought the Euro project was supposed to prevent war....
I read somewhere that the Swiss have their very own Subprime mortgage problem brewing with lots of CHF tied notes in Poland and Hungary going bad.
Mario had time to fix this Grexit problem but he decided to kick the can down the road.
It is true.When the tide goes out you see who has their bathers on....
P.S. Not just the Swiss running for the door,but the Russkies too.If Putin says rubles only for Euro area NatGas,then he has made a big statement about the proposed ECB QE (money printing fiat stuff) and Central bank integrity in general.
Economy has become better! Economy has become merrier!
This points to a large QE next week by the ECB and the losses could theoretically be greater if the Swiss had not decided to pull the plug today. That's what Goldman is essentially saying as well. We shall see soon enough.
SNB's turn to eat the ooky-cookie.
Bank index BKX has been leading the markets down. In 2007-09 it fell from 120 to 20, before American taxpayers were told they would paying for the bailout, and trouble like that is starting again now:
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=bkx&insttype=&freq=2&show=&time=13
It's what happens when your levered 100:1 and derivatives blow.
Ya get smoked.
Euro gonna take a dirtnap.
maybe they should have bought the gold instead of tilting the poll?
The problem with the hedge funds (FOREX) getting slaughtered is they have borrowed at 100-1 to leverage their trades.Now they have to pay the lenders,possibly in real assets this time.Will Yellen cover them with this Omnibus bill where toxic derivatives are covered by the taxpayer again?
If this was Vegas,these fellows would be taken to the woodshed tootie sweetie.
Re-introduction of Risk into the market a bad thing? How about he who panics first,panics best.
Let's take a moment to recap:
Much dead wood (NPL) caused by overexpansion of Spanish real estate sector (and fraud).
Much dead wood (NPL) caused by overexpansion of Irish real estate sector (and fraud).
Much dead wood (NPL) caused by overexpansion of Eastern European real estate sector (and fraud),much of this tied to repayment in Swiss francs.
And guess who gets to bail out the banksters...
There is no way that they can keep Au/Ag prices down now...
You're adorable.
The Swiss probably didn't need any inside information from the ECB. Their move may of itself necessitate large(r) QE now that they have removed themselves as the 'Belgium' of European government debt.
What does it matter? its all monopoly money for the Swiss CB, they can print as many Francs to buy as many Euro or Dollar or Yen as they want and it wouldnt matter either way.
The SNB was hedged into the stratosphere. London whale? Try Intergalactic-Space-Whale. Who do you think was buying all those "riskless puts" people were selling into the peg?
It's weird. It seems like all around the world, CB's are all heading towards free floating exchange rates. What could this mean?
Means the turds won't flush.
If the Swiss CB has been hedging, is that why we've seen EUR/USD decline for the past 6mo? I mean, they must have been planning this move for quite some time...and god knows they should know what they're about to do...
Yesterday's Gazprom move and Ruble move seems to echo the concepts and sentiment I expressed a few days earlier...
Tue, 01/13/2015 - 17:08 | 5657335 new noben
Tue, 01/13/2015 - 17:14 | 5657389 new noben
The Zeitgeist must be in the air. Either that or the right people in Moscow are reading ZH, and getting the Cliff Notes of all the ZH Crowd-Sourcing. ;-)
No matter... the important thing is that the Tectonic Plates of Economic, Financial and Political Truth are finally on the move. I hope.
How ironic that these days, all you have to do is "Tell the truth" to counter the BS, lies and propaganda of TPTB. How ironic, and how sad it is in how far we have fallen morally as a nation (here in the US). The sadness is like mourning for a cousin or a friend.
So the most fiscally conservative population on the planet just became the largest bag-holders of trash assets in history... congratulations Switzerland.