FlowBank bankruptcy 2024: What happened to customers?
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(Disclosure: Some of the links below may be affiliate links)
In June 2024, FlowBank was declared bankrupt by FINMA. The regulatory office established the FlowBank did not have sufficient working capital.
While this is sad for FlowBank, this is especially sad for the more than 20’000 customers of the bank. What happened to these customers? I have discussed the situation with some of them and can now share how they got their money back.
FlowBank bankruptcy
On June 13th, 2024, FINMA announced that they were opening bankruptcy proceedings against FlowBank SA. They established that the bank did not have sufficient capital for its operations. There were also some concerns that the bank was over-indebted.
FINMA already took its first action against FlowBank in October 2021. There were already breaches of the supervisory law. FINMA ordered some measures to restore compliance.
Again, in June 2023, FINMA took action and appointed a monitor to watch the bank activities. The report was that FlowBank repeatedly breached the capital requirements.
Finally, in April 2024, the bank was unable to carry out a capital increase. This required FINMA to intervene and resulted in the bankruptcy. FINMA appointed a law firm (Walder Wyss AG) as a liquidator to carry out all the bankruptcy proceedings.
So, what happened to the 22’000 customers after that?
Freezing the app
As for June 13th 2024, following the bankruptcy, the platform was entirely closed for customers. From this point on, no further orders would be executed.
On the same day, all deposits in foreign currencies were liquidated and converted to Swiss francs. This amount is then added to the standard cash and will be considered for secured deposits.
Finally, FINMA also ordered the liquidation of all CFD positions. The results from this liquidation made it into a special account. And this will not be considered as preferential deposits. This means that CFD proceedings will be part of the bankruptcy proceedings.
Ten days later, the liquidators reopened the platform with read-only access for customers.
Getting the cash back
The priority of FINMA was to get back the cash deposits to the customers. In case of bankruptcy, 100’000 CHF of cash for each customer is considered as privileged deposits. These privileged deposits take priority during bankruptcy and should be repaid quickly.
Fortunately, FlowBank had enough cash to pay bank these privileged deposits. This is good because Esisuisse would need to have been involved otherwise and this could have taken longer for the customers to get back their money.
Overall, it took about two weeks for people to get back their cash.
For people with individual accounts, the transfer could be done directly from the FlowBank platform that was reopened with only this feature. The liquidators worked with FlowBank to amend the application to ease the liquidation process.
Other people, for instance with joint accounts, needed to request the transfer by email, to the liquidators. I have not heard of anybody in this case, but these requests were processed manually, so it could have taken longer.
For people with more than 100’000 CHF in cash, this will take longer, since these assets will then be considered as standard assets and will be returned (if possible) during standard bankruptcy proceedings.
Getting the securities back
For most people, the most important was to get back their securities. All people I have discussed with had ETFs and stocks with FlowBank. And these people had significantly more securities than cash, so they cared more about this.
About a month after the beginning of the bankruptcy proceedings, the liquidators enabled the transfer of securities from FlowBank to another broker. So, impacted customers needed to create another broker account if they did not already have one. Then, they could start the transfer from FlowBank to the new broker for all of their shares.
Even though they enabled this feature after only a month, it took them much longer to then process the transfers. I am actually surprised at how long it took because these transfers are supposed to be automated. And the worst is that they already supported share transfers (in both directions) before the bankruptcy. So, I cannot believe how slow the process was.
They also did some brokers in priority (like Saxo and Swissquote) while others took longer (like Interactive Brokers). I am not sure whether this is fair, but I guess they had a reason to do it that way.
The first person I have heard that got shares back had to wait three months. Yes, September 19th is the first I have heard of anybody getting the shares back. Of course, it does not mean that nobody got shares before, but it also likely means that some other people got their shares later.
During these 3 months, these shares generated some dividends. While people got their shares back, they did not directly got back their dividends. So, after getting the shares, investors still had to wait longer
As expected, people got their shares back. However, it took about three months for people to start getting their shares back. So, we need to be prepared to lose access to our shares for a while. For some people, it took almost six months to get them back!
Or selling the shares
A month after the first people received their shares, many people still did not have their shares transferred. At this point, around mid-October 2024, many people still did not get their shares, after four months.
The liquidators and FlowBank then offered another way out: selling the shares and getting the cash out. This was done through the customer area and the customer could choose which day he wanted to sell.
On one hand, it is good that they offer a way for people to get their money faster, especially for people who may be in trouble because of that. But on the other hand, it would be better if they focused on transferring the shares faster rather than on selling the shares.
Even when done quickly, selling the shares and transferring the proceeds has one disadvantage: it gets you out of the market. You can expect to be out of the market for a week. And if you are unlucky, the market may have gone up significantly during that week. In the very long term, it probably does not make a huge difference. But in the shorter term, it can definitely matter.
Fractional shares
While people could transfer out their standard shares, fractional shares are a different story. Indeed, fractional shares are not directly traded on the stock market. The broker itself will buy the shares and then split them between their customers. So, the shares belong to the broker and cannot be sold back in fractions to the exchange.
In the case of FlowBank bankruptcy, customers had to wait two months just to know what would happen with fractional shares. It appears that liquidators did not really know what to do with them and kept delaying a decision. In the end, fractional shares will have to be sold by the liquidators and then each customer would get back its fraction in cash, through a bank transfer. As of early December, at least some investors (maybe all) did not yet get back their fractional shares.
This is a significant disadvantage of fractional shares, since it means your shares are out of the market. Standard shares were kept invested, while fractional shares did not stay invested. Furthermore, I am not sure about what happened with dividends during the bankruptcy proceedings. It appears the liquidators were not prepared to deal with fractional shares at all.
For me, this is one further sign that we should avoid fractional shares when possible.
What have we learned?
While this bankruptcy is awful for both customers and FlowBank, we can learn a lot from it.
First, it looks like the process works relatively well in the simple situations. Customers got their cash back relatively quickly. And people with only stocks and ETFs also were able to get back their securities in a reasonable amount of time.
However, even in the best case, it took about two weeks to get back the cash and more than three months to get back their securities. So, you must not depend on what you invest, since you could be locked out of your money for a while. During the accumulation phase, this would not be too bad. However, for early retirement or whenever you need the money, this could have been a major issue.
FlowBank already had support for share transfer before. Even with that, it took a very long time to get back the shares. So, I cannot imagine how long it would take for brokers that do not support this feature. Therefore, brokers with share transfer should be preferred.
This is not really new, but this bankruptcy confirms the fact that Contracts For Difference (CFDs) should be avoided. Most people will lose money when investing in them. And in case of bankruptcy, you may have nothing left since everything is done over the counter.
One interesting thing I learned was that FINMA and the liquidators will work together with the bankrupt company to implement a way for the customers to get back their money. I was expecting everything to happen on the backend, but most transfers were done from the front-end, with changes done to the e-banking. Of course, it does not mean it will always happen like this.
This bankruptcy reinforces the fact that fractional shares are truly inferior to standard shares. In the case of bankruptcy, they are likely to be simply liquidated, and you will get cash instead. As a result, you could lose out on potential returns and dividends. Moreover, they pose extra complexity for the liquidators, meaning it takes longer to get it back.
What can we do?
Here are a few things we can do to improve our situation in case of another broker bankruptcy.
- A good rule is to not have more than 100’000 CHF in cash with a broker. It is better to stay below the deposit insurance threshold.
- We should avoid fractional shares since they are more complicated to liquidate.
- We should (of course) avoid anything like CFDs.
- If we need the money to be available, we should probably consider a second broker account.
In our case, we are already following the first three rules. But we are considering opening a secondary broker account in the future to protect against bankruptcy of one of the two brokers. I will share about this once we do it.
Conclusion
The FlowBank bankruptcy story is not yet over, but many people got heir money and shares back. FINMA took great care to work with FlowBank to give their assets back to customers.
Overall, it took about 2 weeks for the first customers to get back their cash. And then, it took at least three months to get back the shares. Since this was a relatively small bankruptcy, we can expect that with a larger event, it would take longer. I would have expected the shares to be distributed faster than that. And for some people, it took almost six months.
In the end, I am not aware of anyone having lost money as long as they used only shares and cash. So, the system is working and we can back the shares. However, it is very slow. In the case of a larger event, it could take much longer.
I think it is good to know what happened with this bankruptcy. This allows investors to be better prepared for the next bankruptcy.
If you would like to learn more about this general subject, you can read my other article about broker bankruptcy.
If you went through this bankruptcy process, how was your experience?
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Very interesting article. I’ve been an investor for many years but what has happend along the road should make us really think about how the whole system is structured. When you buy an asset what are you really buying? From the start of the 2000s the system has deeply changed. From direct ownership we have gone into a totally disconnected system, where everything is build likea Matrioska. Being the beneficial owner of such assets, sounds reasonable but legally it poses lot’s of doubts. When your broker holds the assets in Street name, and then passes those assets to next holder (clearing agencies) all in a very confusing and multilevel system, who is then really the first beneficial owner of such asset? Through this tiny little Swiss bankruptcy we get a taste of what it all looks like. The slow process for receiving cash and the lack of traceability of the securities sums it all up. The accounting is there (on paper you own something) but the asset goes lost in a black hole. If you look at the whole legal system of the financial system, it all seems very prone to protect the centrilized powers and not the single retail investor. When you buy an ETF, what you are really buying is a fraction of the ownership of the legal entity that hold the assets of the fund. But the fund itself is owned by the issuer (Blackrock, Vanguard etc). You would think that in case of a major fiancial meltdown you would be protected. But legally it’s structured in a way that everything is protected for the big corporations and centralized system. All you have is the “beneficial ownership right”, but it’s a very weak term. Who else higher up in the pyramid system has the same right? It should all make us think.
Just imagine what would have happened with a CSS failure. The system couldn’t let it happen because it would have shown the world that all our financial system is rotten to the core and that it”s all a giant House of cards.
Thanks for this interesting article.
How does it work in practice if someone has more than 100k, let’s say 102k? Is the total at risk or only the amount above 100k? Similarly with fractional shares, if someone has 98.3 shares of something are they all at risk or only the 0.3 shares that are indeed a fraction of a share?
Hi Nicole,
For cash, if you have more than 100k, your cash will be handled in two ways. The first 100k will be handled as a secured deposit and will be treated in priority (possibly with the help of Esisuisse, in the worst cases). And the remainder (2k in your example) will be treated as a standard debt (the bank owes you money) in the bankruptcy proceedings, which may take a while.
For the fractional shares, it depends on the company doing it. If the company transforms each full share back to a real share, like Swissquote, only the .3 is at risk. In other cases (Yuh I believe for instance), all shares are held separately and it may complicate getting back the shares.
Dear All,
finally Flowbank has transferred my securities to my current bank, and all went well so far. I still have some small cash amount on Flowbank account which represents the dividends cashed-in past months, and trust this will be transferred to my new bank account. Glad that all went well at the end of this bankrupt procedures, but I admit that it is not ideal to experience. And certainly, those who had more than CHF 100k in cash at the time of the bankrupt, are not in a good situation. Hope that all other clients will get soon their securities and cash
Congratulations Lorenz. This is a good sign. What is your new broker if I can ask? I heard swiss brokers will be priviledged…
Hello Jose’
I was unsure where to open my new account between Saxo Bank and Cornertrade. With Saxo I had previous experience and they have a really good platform and portfolio analysis overview, their services were fine. Saxo is a Danish bank which leaves me a little bit hesitant and now looks like that the owner is willing to sell their stake in the bank. Cornertrade is a Swiss institution, so it gives me a little bit more confidence. Moreover based on their income statement, they make profits each year which is a positive financial flag (getting more sensitive on these topics after FlowBank bankruptcy). The cons of cornertrade is that you do not have a good overview of your portfolio. But it has a good trading platform
Unfortunately cannot make a recommendation, but I welcome any thoughts and ideas
Take care a trust you will get your money soon
Hi Lorenz
I am glad you were able to get back your shares, thanks for sharing!
I agree that this is not idea and I would have expected this to go faster for a relatively small bank.
I am a Client on LCG (Bahamas) also called LCG BHS, or London Capital Markets (Bahamas), a wholly owned subsidiary of FlowBank SA. I have not been able to withdraw any funds from my LCG BHS CFD Account since April 2024. My balance is over £10,000.
Initially LCG Bahamas said they were making a claim on behalf of their Clients. But I then found out that Walder Wyss had stopped funding LCG (Bahamas) at the end of June 2024; ie. there is no one working there.
It seems to me that Walder Wyss have washed their hands of any responsibility to LCG (Bahamas). Walder Wyss talk about LCG BHS like it is nothing to do with them, but in fact Flowbank SA own the whole company and all our Deposits and P&L were kept, allegedly, in a segregated account, at FlowBank SA! The whole situation beggars belief.
I only traded with LCG (Bahamas) because they were a part of FlowBank SA.
I’ve had no luck with FINMA or the Bahamian Securities Commission. It’s like LCG BHS, and my money, have been erased from exisence.
Paul
Hi Paul
Sorry to hear about your troubles, I had no idea that Flowbank also had subsidiaries in the Bahamas. CFDs are very risky investments. Even CFDs from Swiss investors were liquidated and will only be distributed as part of the standard bankruptcy proceedings (outside of the standard investor recovery). So, I think that CFD investors are currently not getting any money back and it’s unknown whether they will.
Thanks for the reply Baptiste, I do appreciate it.
I will sit with the fingers and toes crossed :)
Paul
I took the sell option but have been waiting 10 days (and counting) for the transfer of my cash.
This is a significant sum of money (more than my annual salary) and apparently it is blocked at Credit Suisse while trying to be paid into my Raiffeisen account.
I am now in direct contact with the partner of the liquidators Walder Wyss,
What a nightmare…
Hi Matt
Sorry to hear about your troubles. It is sad that this option does not work well even though it was supposed to work better and faster!
Good luck!
Hi,
I want to share my awful experience in the process of selling “part” of my securities.
I had some funds which was difficult to transfer and therefore wanted to request to sell them. I called FlowBank to request its sales as I could not do so via the client service page and was told that I also had to re-submit my transfer request for the other (ETF) via the client service page, which request was already done by email by email. After the conversation, I received a phone call from FlowBank to ask me to confirm my request (both sales and transfer), so I explained what I want to transfer and want I want to sell. I was told someone from the bank would contact me once completed; however, no one called me. I sent a few follow-up emails, but still no response. When I called to ask the status, I was told that the process would take a while and I had to be patient. As I still heard no news after weeks, I called again today and checked the client page while I was kept “on-hold” 10-15 minutes. And I found that the other ETF, which I requested to transfer, was sold and the cash was credited while the funds I requested to sell was still open! Finally when I was connected to someone and asked about it, I was kept on-hold another 10-15 minutes while she was checking with her colleague in charge, and I was told that they would investigate and contact me back.
Anyone who is still requesting for sales of your shares or securities via the client service page, I strongly suggest you taking a screen shot of each step. You will not be able to go back to what you requested or no document available on the client page (at least I could not find any). You will not receive confirmation of your request in detail from FlowBank or the liquidator either.
Hi KNO
Sorry to hear about your experience, it’s really bad indeed that they would sell the wrong one. And indeed, without documentation, it’s really difficult to make a case :(
I hope you will get everything back in the end!
This feature to help people really seems worse than expected.
Hi,
I would like to share some update and ask for your advice.
FlowBank corrected the sales of the two funds – one is ETF and one is non ETF but then this time transferred both to the bank A, which I requested to transfer the ETF funds ONLY. I knew the bank A would not accept the non ETF funds and thus requested to transfer it to the bank B. While FlowBank insisted that the bank A did not reject the non ETF, the bank A has not shown it in my portfolio yet. The ETF funds are now part of my portfolio with the bank A, which is the only positive update as of today.
I requested both FlowBank and the bank A to share confirmation of the transfer between them; however, so far, no response.
I was finally explained by FlowBank that they would not process two different treatments like I requested. Either to sell all or transfer all to one single bank was my choice, which was not explained by anyone before.
Does anyone have any idea how I can trace the “lost” securities? I have no idea how the banks communicate and confirm the security transfer. Your advice would be highly appreciated.
Hi KNO
At least, you got some of the funds out now. But this is indeed very complicated.
I don’t know exactly how banks communicate these transfers in practice. I expect it can take a while for the bank to reject a transfer. They probably have a system that detect any transfer that has not been claimed after X days (and X can be big).
Unfortunately, the best thing you can probably is still wait and keep insisting on getting information from both banks.
Today we have received a new communication from FlowBank which allows us to sell our shares and securities to speed-up the closing process: reading the e-mail, looks like this being the only option to move forward without further delay. Something that I am considering to do as this allows me to get the asset in cash, and then decide whether I want to buy the same shares or something else. Nevertheless, something that will cause further delays and not sure when the shares will be transferred if we stick to this option.
Interesting. Thanks for sharing. This could be useful for people that really depend on these shares for living. But depending on the volatility of these stocks, this can be risky. It would highly depend on how long it takes them to then transfer the cash after the shares have been sold.
They did not mention this on the liquidation website.
New information: support told me by phone that if one choses to sell the securities instead transferring to a new bank (I am guessing up to 100k), then one could retrieve the funds much faster, circa 1 week time.
According to Le Temps on 27.08.2024, there are 6500 clients waiting and 60-70 ex-employees working on this. With the manual processing of all the counter-parties, it looks like this will take months, rather than weeks… My family name starts with a “T”, so I guess I will be at the end… Very annoying not having access to one’s portfolio, but there is nothing we can do.
https://www.letemps.ch/economie/finance/faillite-de-flowbank-tous-les-clients-ne-recupereront-pas-l-integralite-de-leurs-avoirs
Hi Matt
I hope you will soon have access to your portfolio. It may be alphabetical order, or you may be unlucky. I have no idea in what order they processed the clients.
As you know, the 100k deposit insurance does not even guarantee that you’ll get that money back.
If a bank with over 80’000 customers badly manages their assets and can’t repay any of their customers, then everybody will get less than that, because of the CHF8B rescue fund limit. The higher the number of accounts, the riskier it gets (I believe it’s covered in an article).
In reality, as we’ve seen with Flowbank, FINMA will intervene early enough when they see a bank not covering 125% of the deposits with liquid assets.
Customers staying informed will leave at the first signs of trouble and the rest should get most of their cash when the bank goes under, but, when dealing with nobanks, I’m still worried about bank runs and dodgy investments hidden from FINMA…
Yes, you are right, there is a maximum protection involved. But you would need 80’000 customers with each 100k CHF which seems unlikely. For small to medium banks, it will not be an issue because people have significantly less money on average. And with very large banks, it may definitely be a problem. But we have seen that some the huge banks, the government will find other ways.
Ideally, FINMA should intervene fast enough that we do not need Esisuisse, for the reasons you are outlining.
Bank runs are definitely a possible issue in case of bad news. I am not more worried about neobanks, because we have seen that large banks can do crazy stupid things as well.
I was thinking of Alpian which should have close to 80’000 customers by now and are aiming for the ones with a wealth of between CHF100k and CHF1M, but it’s true that most people will invest their funds instead of just keeping it in cash and Alpian seems to have pivoted to address a lower segment than initially intended in order to increase the number of accounts. So the average will indeed be lower than CHF100k and our money should be safe :)
Fair point indeed that by target wealthier individuals, the average should be higher and then the risk is also higher that we reach the limit of esiuisse. However, Alpian is too new yet for that to happen. In May 2024, they reported nearing 100 million CHF in client assets. So, there should be a good margin :)