When a central bank move surprises the elite stratosphere and top level banking executives are caught flatfooted, that in itself is news.
Goldman Sachs shocked with SNB’s decision
Such is apparently the case as the Goldman Sachs Group Inc (NYSE:GS) , whose alumni sit in top economic perches around the world, as the investment bank was caught flatfooted along with many other institutional investors who expressed “surprise” at a Swiss central bank move that jolted markets.
When the Swiss National Bank yesterday eliminated the exchange rate floor of 1.20 on the value of the Swiss Franc relative to the Euro currency (the EUR/CHF spread), the result was a soaring Swiss Franc and a tumbling Euro that left some brokerage firms making a long list of margin calls and certain asset managers, including some Hedge Funds, scrambling to hedge their exposure. Some traders woke up to margin calls demanding in excess of $200,000 on nothing more than a $25,000 initial investment.
Goldman Sachs was shorting the Swiss Franc
In an asset management note published yesterday, Goldman said that, of their portfolios with currencies, they “have been short the CHF on the grounds that it was an expensive currency which we expected would experience capital outflows as European growth normalized.” The report said Goldman was “surprised” by central bank’s “sudden removal of the peg.”
Central bankers have been known to provide subtle signals that financial insiders interpret as warnings before they make such moves. That apparently didn’t happen in this circumstance.
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