Swiss Franc Revaluation Repercussions – Swiss, Polish and Austrian Banks in the Crosshairs
The SNB’s unexpected suspension of the EURCHF minimum exchange rate continues to claim victims. There have been a number of spontaneous combustion events striking forex brokers and hedge funds, but there are also effects that will only play out over a longer time period.
As Coveredbondreport.com reports, the credit rating agencies feel compelled to reevaluate their ratings of a number of European banks and their covered bond issues, i.e., European-style mortage-backed securities. Contrary to “normal†MBS or ABS, the assets backing covered bonds remain on the balance sheets of the issuing banks. This makes them safer for investors, as e.g. non-performing assets are usually replaced with performing ones, and other safety-enhancing measures are often taken; at the same time, it means that banks issuing these bonds are exposed to risks that in US style MBS are borne by investors. According to the report:
“Noting that while the move is credit positive for the Swiss sovereign, Moody’s said that the removal of the peg is credit negative for Austrian, Polish and Swiss banks and to covered bonds exposed to euro/Swiss franc exchange rate riskâ€
Most affected are apparently Austrian banks, with 17% of their mortgage covered bond assets denominated in CHF and Austrian households exposed to the tune of €25 bn. to CHF denominated mortgage loans. The “bad bank†that is administering the wind-down of the assets of Hypo Alpe Adria, an Austrian bank that fell victim to the 2008 crisis and has turned into a major headache for the country’s taxpayers, has taken a hit as well. 21% of its public sector covered bonds are denominated in CHF, which is so to speak adding insult to injury, as it makes the already horrendously expensive wind-down even more so.
When this happens, it’s all over.
Photo via grassvalley.com
