SNB Suffers Record $32 Billion Quarterly Loss After Franc Surge

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Swiss National Bank President Thomas Jordan
Switzerland’s central bank, led by President Thomas Jordan, has the legal status of a corporation, with the majority of shares held by cantons and cantonal banks. Photographer: Alessandro Della Bella/Bloomberg

The Swiss National Bank suffered its biggest quarterly loss to date, starting the year with a 30 billion-franc hit ($32 billion) after the franc’s value jumped.

The central bank’s decision on Jan. 15 to give up its currency cap of 1.20 per euro caused the franc to rally, resulting in exchange rate-related losses of 41.1 billion francs in the first quarter, it said in a statement on Thursday. That was partly offset by interest and dividend income, plus price gains on fixed income products and equities.

The loss dwarfs even that of 18.5 billion francs incurred in the second quarter of 2013, when the price of gold plummeted. Still, SNB officials might be sanguine about it, said Maxime Botteron, an economist at Credit Suisse Group AG.

“It’s not so relevant for monetary policy,” he said by phone from Zurich. “I don’t think it’ll impact credibility. Their main job is to guarantee price stability, and operationally they can still do that even with negative equity.”

Switzerland’s central bank, led by President Thomas Jordan, has the legal status of a corporation, with the majority of shares held by cantons and cantonal banks. There are also some 2,000 private investors, who receive a dividend but whose voting rights are extremely limited. Because the results are heavily influenced by asset price swings, the quarterly result has little bearing on that for the full year, which in turn determines the payout to the government and the shareholders.

Deposit Charge

“There can still be big changes for the full year,” said Alexander Koch, economist at Raiffeisen Schweiz. “If the franc depreciates, the losses would successively diminish.”

In the first quarter, the Swiss currency appreciated 15 percent against the euro, 2 percent against the dollar and by a similar amount against the yen. The stronger franc means the foreign currencies are less valuable in Swiss terms.

In the first quarter, the SNB earned 236 million francs from the negative interest rate charged on sight deposits, which is the cash commercial banks hold with the central bank. In a bid to widen the interest-rate differential with the euro area and make holding franc-denominated assets unattractive, the SNB cut the deposit rate to minus 0.75 percent in January.

The SNB holds about half a trillion dollars in foreign-currency reserves, much of which has been accrued in recent years due to interventions to weaken the franc and defend a minimum exchange rate.

Some 42 percent of such reserves were held in euros at the end of March, compared with 46 percent in the prior quarter, according to data published separately on the SNB’s website. The allocations for dollars increased to 32 percent from 29 percent.

Much of the reserves are held in highly rated government bonds. The proportion of equities increased to 18 percent from 15 percent.

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