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Echoes Of Swiss Franc Shock Reverberate Around The World

EconomyJan 18, 2015 07:15AM ET
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© Reuters/Arnd Wiegmann. Cars queue before leaving Switzerland in front of a checkpoint at the Swiss-German border in the northern Swiss town of Kreuzlingen Jan. 17, 2015. Balancing a comparatively strong Swiss franc and a comparatively weak euro, many shoppers were expected to cross into eurozone areas bordering Switzerland.

By J.J. McGrath -

The Everest Capital Global hedge fund may be neither the first nor the last currency-market participant to feel the pain caused by the Swiss National Bank’s surprise decision to discontinue its fixing of the minimum exchange rate between the Swiss franc and the euro last week, but the fund’s suffering might be notable because it appears to have resulted in its shuttering, Bloomberg News reported.

Marko Dimitrijevic, who founded Everest Capital LLC in 1990, will close his company’s largest fund due to losses associated with massive movements in the currency market after the Swiss National Bank’s unexpected announcement Thursday that it was abandoning its policy of pegging the exchange rate at 1.20 Swiss francs per €1.00, according to a person familiar with the firm cited by Bloomberg News.

Basically, Everest Capital Global had bet (big) the Swiss franc would depreciate in value, indicated Bloomberg News’ source, who requested anonymity because the information is private. Based in Miami and Singapore, the company had about $830 million in assets under management at its largest fund at the end of last year, according to a client report cited by the news agency.

An emerging-markets specialist, Everest Capital will continue to manage more than $2 billion in assets at its other funds, which do not have the same kind of exposure to the Swiss franc as did their sibling, a person familiar with the company told the Wall Street Journal.

Other hedge-fund firms suffering Swiss franc shock include the London-based Comac Capital LLP, managing $1.2 billion, and the South Norwalk, Connecticut-headquartered Discovery Capital Management LLC, managing $14.7 billion, the Journal reported.

Armel Leslie, an Everest Capital representative at the public-relations agency Peppercomm, declined to comment to Bloomberg News about the Global fund’s closing. And Everest Capital did not reply to an email message about it sent by International Business Times before the publication of this article.

The Swiss central bank’s surprise move to scrap its three-year-old policy on the euro/Swiss franc currency pair, or EUR/CHF, caused the franc Thursday to skyrocket as much as a record 41 percent against the euro and to soar more than 15 percent against all the 150-plus currencies tracked by Bloomberg, the news agency said.

It also led to important losses for Barclays PLC, Citigroup Inc. and Deutsche Bank AG, among other financial institutions, Bloomberg News reported.

The extent of the currency-related pain at FXCM Inc., an online provider of foreign-exchange trading services, resulted in the Leucadia National Corp. agreeing to supply the company with $300 million in cash financing, the firm said in a statement Friday.

FXCM said the financing would enable it “to meet its regulatory-capital requirements and continue normal operations after [Thursday’s] loss of $225 million due to the unprecedented actions of the Swiss National Bank.”

Under the agreement, Leucadia invested $300 million in FXCM in the form of a senior secured term loan with a two-year maturity and an initial coupon of 10 percent, the loan recipient said. Both parties are based in New York.

FXCM CEO Drew Niv said in the statement, “Leucadia’s support and this financing are by far the best alternative for FXCM, our customers, our shareholders and all other relevant constituencies.”

Listed on the New York Stock Exchange, FXCM closed at $12.63 a share Thursday. The equity’s trading was halted during the regular session Friday, but the stock began changing hands again in the postmarket session: It closed at $4.38 a stub.

Echoes Of Swiss Franc Shock Reverberate Around The World
 

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