Author Topic: My Investment bank lost $107m on the Swiss Franc revaluation. Should I worry?  (Read 6052 times)

danclarkie

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HEy,

I bank with SaxoBank as I am a non-resident US alien.

Apparently they were a big FOREX broker and the CHF revalutaion put them$107m in the hole, for which they are hitting individuals with negative balances of $500,000 and more!

Thankfully, I'm not stupid and didn't folly with FOREX, but here are some horror stories from there:

Quote
I was buying short tearm options through SAXO bank trade floor. Initaly I was working with 20 000 USD, last morning 12:00 I fell to 16000 usd and I couldnt withdraw it from the account. After that they recalculated my loss and said that I am -400 000 usd, and a bit later -560 000 USD, and that I haver to cover that Loss in the next couple of months ???????!!!!!
and another one here
Quote
I am in the same case. My account is showing a 6 digits negative number. Do you know what to do ? I am student and i dont have the funds necessary to make up for that loss. Do you think you can contest it ?
And yet another one
Quote
I am a retail trader with SAXO Bank and they too also have asked me to pay a 6 figure sum to them due to negative balance. They originally close me out around 1.15 taking all my margin.. then they called me the next day saying they adjusted the price and now I should pay a very very large sum.. I don't have this money and infarct i lose my life savings here..

Though they seem to blow off $107 as rather immaterial to them, is my capital at risk here from the bank going insolvent?
Especially if the above news sparks a run on them to withdraw assets?

My understanding was that the SEC assures investors that any securities held are safe regardless of the brokerage/bank used to purchase them, right?
So aside from the few hundred dollars I have in cash in my acc, I am not exposed to any risk in the event that the bank were to go insolvent?

Dodge

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HEy,

I bank with SaxoBank as I am a non-resident US alien.

Apparently they were a big FOREX broker and the CHF revalutaion put them$107m in the hole, for which they are hitting individuals with negative balances of $500,000 and more!

Thankfully, I'm not stupid and didn't folly with FOREX, but here are some horror stories from there:

Quote
I was buying short tearm options through SAXO bank trade floor. Initaly I was working with 20 000 USD, last morning 12:00 I fell to 16000 usd and I couldnt withdraw it from the account. After that they recalculated my loss and said that I am -400 000 usd, and a bit later -560 000 USD, and that I haver to cover that Loss in the next couple of months ???????!!!!!
and another one here
Quote
I am in the same case. My account is showing a 6 digits negative number. Do you know what to do ? I am student and i dont have the funds necessary to make up for that loss. Do you think you can contest it ?
And yet another one
Quote
I am a retail trader with SAXO Bank and they too also have asked me to pay a 6 figure sum to them due to negative balance. They originally close me out around 1.15 taking all my margin.. then they called me the next day saying they adjusted the price and now I should pay a very very large sum.. I don't have this money and infarct i lose my life savings here..

Though they seem to blow off $107 as rather immaterial to them, is my capital at risk here from the bank going insolvent?
Especially if the above news sparks a run on them to withdraw assets?

My understanding was that the SEC assures investors that any securities held are safe regardless of the brokerage/bank used to purchase them, right?
So aside from the few hundred dollars I have in cash in my acc, I am not exposed to any risk in the event that the bank were to go insolvent?

Wow, crazy story!  According to Wikipedia SaxoBank has a yearly profit of $93,669,934.  Losing a year's worth of profit isn't fun, but it shouldn't put them under.

I know someone who lost $50,000 when their Forex broker went out of business a few years back.  He lawyered up and fought for years, but never got anything back...but you aren't invested in Forex right?  My understanding is that your assets are safe.
« Last Edit: January 28, 2015, 08:55:46 PM by Dodge »

danclarkie

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Crazy, right.

The Wikipedia net income is from 2011, this Reuters article quotes them as having operating capital of 2.15bn DKK (~$325m USD) when the losses were taken into account.
Which is above the 1.7bnDKK capital they are required to hold.

If that's correct then, whilst it is a shitty day in the office for them, it shouldn't mean that the curtain falls any time soon.

Leverage, man...
One hell of a drug.

but you aren't invested in Forex right?

Nothing in FX products, and nothing on leverage at all.

goodrookie

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In USA, there's something called SIPC. This is not similar to FDIC. If you bet your life savings on a stock /ETF and that stock/ETF goes bust, you won't get anything. But SIPC protects against loss not related to the risk of underlying securities. If your broker suddenly decides to take all the money to a Caribbean island, you have some protections.

However, you likely do not have that protection if the brokerage firm does not have an U.S. presence.

danclarkie

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In USA, there's something called SIPC.

SPIC was what I was looking for, not the SEC...
I just couldn't recall the name of the organization.

IIRC, the SPIC ensures that you retain your shares in the event that your brokerage collapses.

i.e Saxo Bank don't have my money they just hold the securities I have purchased (and charge a fucking custody fee to boot).
In the even that Saxo collapse, SIPC ensure that those securities remain issued to me.

There is of course the situation where Saxo might go rogue, sell my securities, pocket the money and then run to the Caribbean, which I hold to be unlikely.

goodrookie

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EXCEPT it is not in USA. If it does not have an U.S. presence, it is unlikely to be covered by SIPC.
You can call them directly or go to http://www.sipc.org/list-of-members to see if SaxoBank participates.

Adventine

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Crazy stories for sure. Glad you didn't get into forex or leverage.

danclarkie

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EXCEPT it is not in USA. If it does not have an U.S. presence, it is unlikely to be covered by SIPC.
You can call them directly or go to http://www.sipc.org/list-of-members to see if SaxoBank participates.

This is the key point I think.

I have to wonder if there is a similar body, in Europe, to the SIPC that deal with this.

I assume there is.
I'd better research.
« Last Edit: January 28, 2015, 11:58:40 PM by danclarkie »

ScroogeMcDutch

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In the Netherlands, a similar construction is required by a government body as well. The entity that holds the shares is legally separated from the one which is doing the trading/making the profit. As such if the trading entity goes bust, you still have a claim on the entity that holds the shares and nothing is lost.

It is an assumption, but I would assume in Denmark a similar law exists.

SunshineGirl

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When in doubt, get out. I certainly wouldn't want that as my only place to store funds and hold assets.

REfinAnon

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In USA, there's something called SIPC. This is not similar to FDIC. If you bet your life savings on a stock /ETF and that stock/ETF goes bust, you won't get anything. But SIPC protects against loss not related to the risk of underlying securities. If your broker suddenly decides to take all the money to a Caribbean island, you have some protections.

However, you likely do not have that protection if the brokerage firm does not have an U.S. presence.

Does this same protection apply to index funds? It seems somewhat difference since individual investors do not own individual company shares that are attributable to them.

danclarkie

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In USA, there's something called SIPC. This is not similar to FDIC. If you bet your life savings on a stock /ETF and that stock/ETF goes bust, you won't get anything. But SIPC protects against loss not related to the risk of underlying securities. If your broker suddenly decides to take all the money to a Caribbean island, you have some protections.

However, you likely do not have that protection if the brokerage firm does not have an U.S. presence.

Does this same protection apply to index funds? It seems somewhat difference since individual investors do not own individual company shares that are attributable to them.

I would assume that as ETFs are marketable securities that they fall under the same protections.
In any case if the ETF firm went broke, you would have claim to the underlying securities that were in the ETF you held.
In theory you could, at any time, cash in your ETF in exchange for the underlying securities they hold.

goodrookie

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To be fair, FDIC which insures bank accounts, CDs, etc. also have limits similar to SIPC. But one of the major difference between SIPC and FDIC is the tax issue. Customers are still responsible for their "unpaid" taxes. 

Interestingly, most of the Madoff's investors were wealthy (hence they could get only a small fraction).

danclarkie

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This is quite confusing.

Lets say I own $1m in Google stock.
My investment bank goes insolvent and closes.

This should not affect my $1m in Google stock as what I have is an ownership stake of Google that is publicly traded.
All my investment bank did was facilitate the trading of those securities and then hold onto them for me.

Unless, of course, the securities are actually held in the name of the investment bank and just reflected in my customer account.
In which case those securities would be liquidated to meet the banks obligations, I guess.

I don't know enough about the details here.

Anyone help?

beltim

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Understand that SIPC is an insurance program that insures against certain events up to a certain dollar limit. Your securities aren't magically protected above that limit, namely $500,000, of which at most $250,000 can be cash. If you browse the SIPC website you will see that a claim against SIPC insurance does not always get all your money back. It depends on how much money is obtained from the liquidation of the failed institution's assets. Madoff's investors got only a small fraction of their money back (and yes, that was a case handled through SIPC).

That's because Madoff was a fraud and wasn't actually investing money.  When Joe or Jane Doe go to Fidelity and buy Apple stock, the securities themselves (not the value of the securities) are protected, up to the $500k limit that you mentioned.

danclarkie

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This is quite confusing.

Lets say I own $1m in Google stock.
My investment bank goes insolvent and closes.

This should not affect my $1m in Google stock as what I have is an ownership stake of Google that is publicly traded.
All my investment bank did was facilitate the trading of those securities and then hold onto them for me.

Unless, of course, the securities are actually held in the name of the investment bank and just reflected in my customer account.
In which case those securities would be liquidated to meet the banks obligations, I guess.

I don't know enough about the details here.

Anyone help?

The bolded part is an accurate description of how brokerage accounts work, also known as "street name". If you want to own the stock directly, that can be arranged, but it's not a service that retail brokerages typically offer.

I did have a strong feeling that this was the case.
I believe I had read that before.

Thanks for confirming :)

MidWestLove

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let us know how it would go .. I doubt US specific regulations apply here (as this is not a US entity or US division of international organization). Also, in US, what this 'bank' does would be called Broker Dealer organization (BD in financial jargon , http://en.wikipedia.org/wiki/Broker-dealer ), not 'investment bank' as investment bank is something completely different.