SNB Returned to Profit in Second Quarter on Currencies, Gold

The Swiss central bank returned to a profit in the second quarter from a year earlier, helped by gains on its foreign-currency positions and gold holdings.

The profit of 8.2 billion francs ($8.4 billion) compares with a loss of 12.7 billion francs in the year-earlier period, the Swiss National Bank said in an e-mailed statement today. Foreign currency positions contributed with a profit of 7.7 billion francs after a loss of 11.5 billion francs in the previous year. The SNB earned 502.3 million francs on gold holdings after a loss of 1.6 billion francs.

“The SNB result depends largely on developments in the gold, foreign-exchange and capital markets,” the central bank said. “Strong fluctuations are normal and only provisional conclusions are possible as regards the annual result.”

The franc was little changed after the release and traded at 1.2011 against the euro at 10:39 a.m. in Zurich. Against the dollar, it was at 97.93 centimes.

The Zurich-based central bank has been forced to purchase foreign currencies to defend its franc ceiling of 1.20 per euro imposed in September to fight deflation threats and help exporters. SNB President Thomas Jordan said on July 3 the central bank is “ready to enforce the minimum exchange rate with unlimited purchases of foreign currencies, if needed.”

Currency Holdings

The SNB earned 6.1 billion francs on foreign-exchange valuations in the second quarter, according to calculations by Bloomberg News. While the euro remained largely unchanged versus the franc in the second quarter, the dollar appreciated 5.2 percent and the pound gained 3.1 percent.

The SNB’s foreign-exchange holdings increased to 365.1 billion francs at the end of the second quarter from 245.5 billion francs at the end of March. The central bank’s euro holdings were at 219.5 billion francs at the end of June, up from 124.1 billion francs. Dollar reserves rose to 79.4 billion francs from 63.9 billion francs and yen holdings also rose.

Government bonds in their own currencies accounted for 85 percent of the SNB’s assets at the end of the second quarter, with equities at 10 percent, today’s report showed.

“The figures show that the SNB bought euros in the second quarter to defend its ceiling,” said Alexander Koch, an economist at UniCredit Group in Munich. “At the same time, they started to sell the euro versus other currencies to diversify their balance sheet assets.”

For the first half of 2012, the SNB reported a profit of 6.5 billion francs after a loss of 10.8 billion francs a year ago. Foreign currency positions added 5.1 billion francs after a loss of 9.9 billion francs, with gold holdings contributing 1.3 billion francs after a loss of 1.6 billion francs.

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