Saxo Faces Legal Battles as Clients Told to Cover Franc Losses
(Bloomberg) — Saxo Bank A/S says it is bracing itself for lawsuits from some clients who may be unhappy with its efforts to have them cover losses on their Swiss franc accounts.
The Danish bank set a Jan. 23 deadline for clients to respond to its estimates of how much they’d lost trading francs using borrowed funds. Saxo says talks with institutional and retail customers will probably take “a couple of months.” The bank estimates its own losses may be as high as $107 million.
“It’s not unlikely that we’ll face legal challenges,” Steen Blaafalk, Saxo’s chief financial officer and head of risk management, said in a phone interview. “If we need to debate it through such a channel, we will of course do that, but hopefully we don’t have to and we are actively working with clients to find a plan of action for repayment.”
Since the Swiss National Bank’s shock decision on Jan. 15 to abandon its euro peg, Saxo has raised its margin requirements not only on the franc, but on most major currencies in an effort to reflect what Blaafalk says is a return to “extreme volatility” across markets.
The bank is now urging clients to gird for more market disruptions as bond purchases by the European Central Bank distort asset prices and as Greece prepares to renegotiate its bailout terms. Claus Nielsen, Saxo’s head of markets, said last week the bank is “looking at all asset classes” as it reviews its margin requirements to reflect the increase in risk.
For now, the bank remains in damage-control mode. Most clients have already settled their accounts, “but we assume there will be a tail that will take a little longer,” Blaafalk said.
‘Obvious’ Risks
The sharp appreciation in the Swiss franc that marked the end of its three-year peg to the euro should serve as a reminder to investors that they can lose a lot of money very suddenly in markets once deemed relatively safe, Blaafalk said.
Efforts to go over client losses are “time-consuming and expensive, and our case is pretty clear,” he said. “The procedures are clear and clients sign a business agreement. It should be pretty obvious to clients there is a risk with this.”
A number of the world’s biggest banks were caught on the wrong side of franc trades on Jan. 15, with Citigroup Inc., Deutsche Bank AG and Barclays Plc suffering about $400 million in cumulative trading losses, according to people familiar with the events.
“We are interested in settling with clients the outstanding amounts, and we are flexible,” Blaafalk said. “Certainly, there will be some clients who will probably struggle with this.” But ultimately, “both parties do have to get on with their lives.”
To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net To contact the editors responsible for this story: Veronica Ek at vek@bloomberg.net Tasneem Hanfi Brogger, Christian Wienberg
