# Swiss franc grapples with safe-haven identity crisis after Credit Suisse Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-03-24 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Why the Swiss Franc Hasn't Lived Up to Its Safe-Haven Meta Description: Investors seek safer havens like gold and yen as the Swiss franc weakens amidst Credit Suisse takeover by UBS. URL: https://financedigest.com/swiss-franc-grapples-with-safe-haven-identity-crisis-after-credit-suissehtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-03-24t060619z1lynxmpej2n05frtroptp4global-banks-markets-swiss-franc-1736814262589-compressed.jpg) By Samuel Indyk LONDON (Reuters) – The Swiss franc hasn’t lived up to its safe-haven reputation during the Credit Suisse collapse, as investors have sought shelter elsewhere, bringing more of a boost to the value of the gold in Switzerland’s bullion vaults than to its currency. Money managers ditched the Swiss franc at the fastest rate in two years last week in the run-up to the dramatic takeover of Credit Suisse by UBS. The Swissie, often used as a refuge in times of market stress or volatility, lost 0.9% against the dollar in the week after the Swiss finance department said regulators were closely monitoring the situation at [Credit Suisse](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") on March 13. In that same time, Japan’s yen, which is also seen as a refuge in times of tumult, rose 2.6% against the dollar. Gold, another traditional safe haven, rose over 5% in the week after March 13 to above $2,000 an ounce, its highest in over a year, while government [bonds saw some of their biggest](https://www.financedigest.com/ecb-can-cut-carbon-footprint-by-shedding-bonds-of-biggest-polluters.html "ECB can cut carbon footprint by shedding bonds of biggest polluters") inflows in decades. It definitely is to do with developments in the [banking sector,”](https://www.financedigest.com/sterling-rises-as-receding-bank-sector-worries-lift-sentiment.html "Sterling rises as receding bank sector worries lift sentiment") said Kirstine Kundby-Nielsen, FX analyst at Danske Bank, on why the franc wasn’t stronger. You still have some of the safe-haven hedging properties in the Swiss [franc but it can only take so much when the risk](https://www.financedigest.com/france-seeks-strategy-as-nuclear-waste-site-risks-saturation-point.html "France seeks strategy as nuclear waste site risks saturation point") ends up being so concentrated in the Swiss economy and the Swiss financial sector,” Kundby-Nielsen added. Speculators added over $800 million to their bearish positions on the Swiss franc in the week to March 21, according to data from the [Commodities Futures Trading](https://www.financedigest.com/a-brits-guide-to-understanding-commodity-trading.html "A Brit’s Guide to Understanding Commodity Trading") Commission, the most in one week since early March 2021. Graphic: Franc, yen, gold, https://fingfx.thomsonreuters.com/gfx/mkt/dwvkdkjxgpm/Pasted%20image%201679581765182.png On Sunday, the Swiss National Bank (SNB) orchestrated a $3 billion deal for UBS to buy rival Credit Suisse, backed by a massive guarantee of up to $260 billion, a [third of the country’s national](https://www.financedigest.com/still-living-at-home-a-third-of-the-nation-cant-afford-to-rent.html "Still living at home? A third of the nation can’t afford to rent") output, in state and central bank support. If it hadn’t been Credit Suisse, but any other European [bank getting into trouble](https://www.financedigest.com/explainer-what-are-credit-default-swaps-and-why-are-they-causing-trouble-for-europes-banks.html "Explainer-What are credit default swaps and why are they causing trouble for Europe’s banks?"), you would have seen the Swiss franc rising sharply because it would have been the safe haven for European risk,” said Francesco Pesole, FX strategist at ING. Research from the SNB in 2016 found that in previous crises, flows into Switzerland and the franc were driven by weaknesses elsewhere. Futures data shows speculators poured money into bullish [bets on the Swissie after the dot-com bubble burst in early](https://www.financedigest.com/analysis-investors-stick-to-bets-on-early-end-to-ecb-hikes-as-uncertainty-grows.html "Analysis-Investors stick to bets on early end to ECB hikes as uncertainty grows") 2000, after the 9/11 attacks in 2001, and again in 2008 and 2011-2012, during the euro zone debt crisis and once more during the COVID crisis. During the collapse of Lehman Brothers in 2008, net inflows were driven by a “substantial retrenchment” into the domestic market by Swiss banks, while in the euro area [banking crisis](https://www.financedigest.com/how-the-2023-banking-crisis-unfolded.html "How the 2023 banking crisis unfolded") from mid-2011, the SNB found that moves away from the euro and into the franc were driven by foreign banks moving assets from the euro area branches into their Swiss branches. “The current setup doesn’t argue for either of those things. U.S. bank stresses have been contained in [regional banks](https://www.financedigest.com/danich-local-and-regional-banks-launch-mobile-wallet-powered-by-nets-new-hce-and-tokenisation-platform.html "DANICH LOCAL AND REGIONAL BANKS LAUNCH MOBILE WALLET POWERED BY NET’S NEW HCE AND TOKENISATION PLATFORM") and euro area banks have so far been relatively unscathed,” said Michael Cahill, senior FX strategist at Goldman Sachs. The franc is not an ‘all-weather’ safe haven and so far we’ve not had the type of [market pressures](https://www.financedigest.com/intracranial-pressure-monitors-market-is-set-for-a-potential-growth-worldwide.html "Intracranial Pressure Monitors Market is Set for a Potential Growth Worldwide") that would typically lead to franc appreciation,” he said. SWISS It’s one thing for the franc to have lost some favour among investors during a Swiss-centric crisis, but [quite another to suggest its days as a safe](https://www.financedigest.com/fractional-property-isnt-quite-as-safe-as-houses.html "Fractional property isn’t quite as safe as houses!") haven are numbered. For the Swiss franc to lose its status as a safe haven, FX strategists at Barclays say “fundamental changes” in the country’s balance sheet would be required, with the [share of Swiss-issued assets in external liabilities required to fall](https://www.financedigest.com/tomtom-shares-fall-as-2023-uncertainties-outweigh-q3-beat.html "TomTom shares fall as 2023 uncertainties outweigh Q3 beat") via “large and sustained” outflows. This would lead to an increase in domestic interest rates, thereby increasing the yield [Switzerland’s external liabilities pay and further weighing on the country’s yield differential,” Barclays](https://www.financedigest.com/barclays-private-bank-opens-new-office-in-verbier-switzerland-for-2022-23-ski-season.html "Barclays Private Bank opens new office in Verbier, Switzerland for 2022/23 Ski Season") FX strategists, led by Lefteris Farmakis, said. “In such a scenario, the SNB would likely attempt to smooth out the transition by cushioning capital outflows,” Farmakis said. Barclays said the odds of a “sudden stop” episode are extremely low despite the current [banking turmoil](https://www.financedigest.com/banking-turmoil-means-recession-fears-are-creeping-back.html "Banking turmoil means recession fears are creeping back"), but a more difficult question to answer is whether confidence in the financial system has been eroded to a degree that a “slow burn” episode may have started. Fortunately,” [Barclays says](https://www.financedigest.com/iberdrola-hires-barclays-to-sell-stake-in-spanish-renewable-portfolio-expansion-says.html "Iberdrola hires Barclays to sell stake in Spanish renewable portfolio, Expansion says"), “this scenario has limited repercussions for the franc over the foreseeable future. (Reporting by Samuel Indyk, additional reporting by Lucy Raitano; Editing by Amanda Cooper, William Maclean) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---