SNB Suffers Second-Quarter Loss After Price of Gold Fell

The Swiss National Bank suffered a loss of 18.5 billion francs ($20 billion) in the second quarter as the price of gold tumbled, eroding the nominal value of its holding.

The loss compares with a profit of 8.25 billion francs for the corresponding quarter a year earlier, the Zurich-based institution said in a statement today. For the first half of the year the central bank reported a loss of 7.3 billion francs.

“While the sizable swings in the SNB’s profit and loss statement look impressive at first sight, they clearly need to be put into perspective,” said Reto Huenerwadel, a senior economist at UBS AG in Zurich. “Nothing in the latest batch of data on the SNB’s balance sheet thereby hints at a material change of their position on monetary issues.”

Swiss National Bank President Thomas Jordan said earlier this month said he had no intention of changing or scrapping the ceiling of 1.20 per euro, set in September 2011 to ward off deflation and a recession.

At the same time, data on the Zurich-based central bank’s website today showed the proportion of euros and other major currencies in its foreign currency reserves -- a sum equal to about three-quarters of the economy’s annual output -- didn’t change as of June 28. Its holdings have ballooned due to its enforcement of the currency cap.

The franc was up 0.1 percent at 1.2336 per euro at 12:36 p.m. in Zurich. Versus the dollar it stood at 92.98 centimes.

Public Scrutiny

The central bank’s profit has been of public interest in Switzerland after the SNB ran up a record 19 billion-franc book loss in 2010, resulting in calls by some politicians for then-President Philipp Hildebrand to resign.

The SNB suffered the valuation loss to its gold holdings in the second quarter after the price of gold fell to its lowest in 34 months in late June, having lost a quarter of its value since the start of April. The SNB said its gold holdings of 1,040 tonnes were unchanged in the second quarter.

The net result from the SNB’s foreign currency positions amounted to a loss of 5.4 billion francs in the second quarter, it said in the statement. It has amassed the reserves due to its efforts to defend the cap.

The main adjustment to its asset allocation undertaken during the second quarter was a reduction in the proportion of foreign currency invested in AAA-rated bonds, which fell to 71 percent from 76 percent, while holdings of AA-rated bonds increased to 23 percent. Its holdings of euros remained constant at 48 percent.

Popular Campaign

The SNB’s gold holdings are the target of a popular initiative, which demands that at least 20 percent of the central bank’s assets be in the form of gold. The measure would also block the sale of such holdings and require all SNB gold to be located in Switzerland. Currently, about 20 percent at the SNB’s gold is held at the Bank of England and another 10 percent at the Bank of Canada, with the remainder stored domestically.

Jordan in April said that the initiative could limit its ability to conduct monetary policy, breaking from the SNB’s policy of not commenting on politics.

Because the SNB’s balance sheet has expanded significantly since it set the franc ceiling, the SNB would have to buy a large amount of gold to meet the 20 percent requirement, were the initiative to be accepted, according to Jordan.

While the Swiss People’s Party, members of which started the initiative after failing to get backing for the issues in parliament, has submitted the requisite 100,000 valid signatures for a referendum, the actual popular vote may be years away.

The quarterly results of the SNB, whose largest shareholders are the federal government and the 26 cantons, are calculated by comparing asset prices at the start and end of the three-month period, and therefore have little bearing on the central bank’s result for the full year. For 2012, the distributed 1 billion francs to the government and cantons.

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