Swiss franc dilemma could be short-lived, says ADS Securities chief

Abu Dhabi-based ADS Securities expects a not very long lifespan for the crisis of the Swiss franc after the removal of the euro peg that had wiped out several foreign exchange brokers in London and New York.

Managing director of ADS Philippe Ghanem added that the Abu-Dhabi brokerage leader has emerged unharmed after the franc rallied against all global currencies late last week as it was able to avoid margin calls.

The crisis is likely to be short-lived and is not expected to have a vast impact on the world economy.

Ghanem also said that Gulf countries don’t have major dealings with the Swiss currency, therefore, will not be impacted. He added that the most likely effect will be on goods imported from Switzerland like Swiss watches as they would become more costly.

“I don’t see it lasting for very long in my opinion,” he said. “And don’t think it will hurt the industry much in the long term.”

The Swiss National Bank (SNB) on Thursday decided to put an end to a three-year policy that has capped the franc at 1.20 per euro, and that resulted in hundreds of millions of losses at major banks including Citigroup, Deutsche Bank and Barclays, not to mention losses at brokerage firms, mutual and hedge funds.

The franc then leaped 41% against the euro, the largest gain ever, and surged around 15% against all of the currencies tracked by Bloomberg.

The euro advanced more than 5% in the two sessions after January 15 when the decision came out, but then got back to retreat mode. The euro was down 1.05% against the franc on Wednesday at 0.9996 franc.

The U.S. dollar was last down 1.23% against the franc and showed the same behavior against the Swiss currency.

Some brokerage firms filed for insolvency and some received bailouts. Shortly after the crisis, ADS Securities increased its capitalization. ADS said it would double its capital money from ADS Holding, its parent company.

Everest Capital Global, the 24-year old and the biggest fund of Miami-based Everest Capital was wiped out in less than a day.

The Aftermath

The franc is now at the risk of losing its funding currency status after the massive spike in realized volatility. The euro is likely to face more pressure as the Swiss National Bank has been a buyer of euros.

The Swiss national bank has a great amount of euros in its possession, and this entails a massive loss for the central bank.

The franc could stabilize at levels around 1.10 per euro as it would be the most appropriate for both the Eurozone and the Swiss economy to cope with. Even with the current global risk aversion, investors should have less interest in buying francs at its costly levels and its negative interest rates.

The SNB’s move was quite a shocker on the international and domestic level. Domestic investors and companies had what was seen as a vow to sustain the 1.20 peg, and together with the December negative rates issue, the bank’s domestic and international credibility is at question now.

The volatility on the Swiss franc could be lowered if the Swiss National Bank makes some interventions or maybe lowering interest rates into more negative, which would allow the U.S. dollar and the euro to have a gradual recovery against the U.S. dollar.