"Citigroup was exposed after selling options on the Swiss franc to customers and failing to renew offsetting hedges," reports Bloomberg, explaining that "the options gave buyers the right to collect from a strengthening franc and from higher volatility."
Citigroup told the agency in a statement that the lapse in its hedges contributed to its losses, which totalled $200 million immediately after the move by the Swiss National Bank, but that its traders managed to mitigate these losses slightly, to $150 million. The main force behind the initial loss was customer trading.
"As a result of our role in making markets and facilitating trades for clients, Citi experienced a modest loss," said spokeswoman Danielle Romero-Apsilos. "Expiration of hedges related to the franc did not drive the shortfalls in our trading activity, all of which was executed under our existing rigorous risk management limits and supervision."
However, a source close to investment bank JPMorgan Chase told the newspaper that the bank made between $250 and $300 million in gains on January 15 after filling client orders at a rate of 1.02 francs per euro, at a time when the franc strengthened from 1.20 francs per euro to nearly 0.85.
On January 15 the franc soared by around 30 percent against the euro after the SNB shocked financial markets by abandoning the cap on its currency, according to which one euro had been pegged at 1.20 francs since September 2011. In a day of trading which one trader described to the BBC as "carnage," the franc rose as high as 0.81 per euro immediately after the SBN move, although it subsequently settled at 1.04 euros.
