Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Swiss Franc Hurts Homeowners but Could Be a Boon for Investors

Housing-Market / Global Housing Markets Feb 13, 2015 - 01:28 PM GMT

By: Money_Morning

Housing-Market

Peter Krauth writes: When the Swiss National Bank de-pegged from the euro last month, the fallout was massive.

One dramatic example of its impact was that felt by Miami-based hedge fund manager Everest Capital. The firm's largest single fund lost nearly all its capital, $830 million in assets, thanks to heavy bets that the Swiss franc would decline.

Alpari UK, a foreign exchange broker, became insolvent. New York's FXCM Inc. (NYSE: FXCM), an online foreign exchange trading firm, got a $300 million lifeline from Leucadia National Corp. (NYSE: LUK).


But just like the subprime mortgage debacle in the United States, small retail investors are caught in the crosshairs too.

Don't let yourself be one.

How Europe Could Stem the Incoming Tide of Bad Loans

Few may be aware that in the 2000s, homeowners in Eastern Europe – mainly Poland, Romania, and Hungary – took out Swiss franc-denominated mortgages.

Despite warnings from policymakers and economists, these mortgages were irresistible thanks to interest rates far below those of their national currencies.

But what borrowers failed to understand (or chose to overlook) was the exchange rate risk embedded in those loans. Thanks to the recent surge in the franc against the euro and numerous other currencies, the burden of those mortgage payments has been compounded by the exchange-rate variable.

Now those mortgage holders are clamoring for help, and getting it in the most likely of places. Even better, there are companies that can profit handsomely from the situation.

Back in November, Hungary made a deal with retail banks to convert forex home mortgages into the local currency at official exchange rates. It's a compromise deal, where homeowners gain a lot, and banks lose a bit. Sort of.

1.3 million households saw a 25% to 30% drop in their monthly payments. For their efforts, retail banks will get a 9 billion euro bailout from the central bank's foreign currency reserves.

Needless to say, this move was hugely popular with concerned borrowers, and earned Prime Minister Orban much appreciation from distressed borrowers.

Homeowners in Poland took notice, with hundreds turning out to protest in Warsaw, Poznan, and other cities, insisting the government provide help repaying their Swiss franc-denominated mortgages.

Presumably to buy votes to shore up her own election campaign, Polish prime minister Ewa Kopacz recently said, "Poland may help financially troubled holders of Swiss franc-denominated mortgages at the expense of the banks… If I have to choose between the interests of the banks and of the people who took out these loans, I will stand behind the people, but at the cost of the banks, not of the (state) budget."

As we well know, banks will not stand for that, so public money may ultimately be the remedy here too.  It's another case of socializing the debt through use of the state funds. Everyone ends up paying for the affected.

It is estimated that 550,000 such Swiss-denominated loans are held in Poland. That totals $36 billion, equal to a not insignificant 8% of the nation's GDP.

Meanwhile the EU's second-poorest member, Romania, is looking to mimic Hungarian and Polish methods in dealing with 75,000 of its own adversely affected borrowers. While in Croatia a shocking 17% of Swiss franc-denominated loans are currently non-performing.

This country could easily be next to dump consumer losses onto banks, thanks to their own large portfolios of Swiss franc-denominated loans. And we all know who will end up footing that bill too.

Geopolitical Risk Adds Yet More Concern

OK, by now you're probably thinking:  So what?  Who cares if a bunch of Eastern European banks fail or (much more likely) get bailed out?  I say not so fast.

You see, Raiffeisen Bank International, based in Austria, has branches across Central and Eastern Europe.

Already reeling thanks to forex damage from exposure in Ukraine and Russia, Raiffeisen Bank International AG (VIE: RBI) has been one of the biggest providers of Swiss franc-denominated mortgages in Eastern Europe.

Rubbing more salt in the proverbial wound of investors in these mortgages, since January 1, new EU rules force junior bondholders to take losses before state aid can be provided.

With 4.3 billion euros of Swiss franc loans on its books, Raiffeisen, despite a recent rally due to a Ukranian ceasefire, is in a bad place.

Its stock has been in freefall since the perfect storm of Ukraine, Russia, and Eastern Europe has hit.  So it came as little surprise when management announced  a major restructuring recently, saying it would be selling operations in Poland and Slovenia, and scaling back in Russia, Ukraine, and Hungary.

Compounding matters, Raiffeisen has essentially taken a distributed risk and focused it in Austria. Banks within the Raiffeisen cooperative hold 282 billion euros of assets, reaching a mind-numbing 87% of Austrian GDP.

Can you see where this may be going?

While all this risk may look relatively benign from Wall Street, it's very possible this crisis will come full circle. To wit, it's not difficult to imagine the rapid escalation for the European equivalent of what was initially a U.S. financial crisis that soon spread like wildfire, quickly going global. Right now the European economy is fragile enough.

The last thing we need is a crisis in the world's No. 2 currency.

Here's the Opportunity…

Clearly staying away from European bank stocks laden with both rapidly devaluing and defaulting assets is a risk-management given. Less obvious is the profit opportunity: buying in on the opposite side of the scenario to take advantage of the strength of the Swiss-franc as a result of de-pegging from the euro. Here's how.

In well-covered news, Apple Inc. (Nasdaq: AAPL) issued $6.5 billion bonds in early February.

Of that $6.5 billion, $1.35 billion was issued in Swiss-franc denominated bonds. It was the first time Apple issued in Swiss-francs, and not surprisingly. The company smartly took advantage of the country's low borrowing costs, driven down by the de-peg. Swiss government bonds currently are well below 0% all the way out to the 10-year mark on the yield curve.

Comparatively, Apple's November 2024 issuance at a nominal .281% represents a fixed-income value, especially in light of a strong American dollar.

Apple also issued 15-year bonds with a .74% coupon. Again, nominal at face but at a considerable spread over much of what Europe has to offer (and with a corporate backing that ironically could prove substantially more solid than most European governments).

With the proceeds reported to fund Apple dividend payments and buybacks, investors who also hold Apple stock are in turn bolstering their equity portfolio. And profiting on the back of what might be the next big mortgage crisis.

Source :http://moneymorning.com/2015/02/13/swiss-franc-hurts-homeowners-but-could-be-a-boon-for-investors/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules