SNB Equity Holdings Rise in Third Quarter as Stocks Gain

The proportion of equities in the Swiss National Bank’s foreign-currency investments rose to a record in the third quarter as global stock markets rallied.

The share of stocks in the central bank’s portfolio climbed to 16 percent at the end of the three months through September, compared with 15 percent at the end of the previous quarter, according to data on the Zurich-based institution’s website today. Its holdings of government bonds fell to 77 percent from 78 percent.

The SNB has amassed foreign-currency reserves equal to three quarters of the nation’s annual output as it has sought to defend the cap of 1.20 it set in September 2011 against the euro. Reserves stood at 432.45 billion francs ($480 billion) at the end of September.

With stock markets rallying this year, the SNB has boosted the proportion of equities it holds in its foreign currency reserves. At the end of last year it held 12 percent of its portfolio in stocks.

In the third quarter, equities rallied more than bonds, the dollar and metals, with the MSCI All-Country World Index of shares in 45 markets climbing 8.1 percent including dividends, as the U.S. Federal Reserve unexpectedly refrained from reducing its bond purchases and anxiety about the euro area’s debt crisis eased.

Passive Investor

The SNB’s governing board members have stressed their policy is one of a passive investor, and that their investments replicate broad-based indexes.

Some 27 percent of the central banks foreign-currency holdings were in dollars at the end of the third quarter, unchanged from the second. It held 48 percent in euros, also steady from a quarter earlier.

Thanks to an easing of market stress in the euro area, which had prompted investors to seek out haven assets such as the franc, the SNB hasn’t had to intervene in currency markets to protect its ceiling for more than a year, SNB President Thomas Jordan said last month. The measure remains in place to be used if needed, he said at the time.

Separately, the central bank said that its profit for the third quarter fell from a year earlier due to a valuation loss on its foreign currency positions.

The interim profit, which depends on asset price swings, fell to 854.1 million francs from a restated profit of 10.57 billion francs for a year earlier.

Valuation Loss

Its foreign currency positions incurred a loss of 1.76 billion francs, compared with a gain of 5.2 billion francs a year earlier. The net result on the 1,040 tons of gold it holds fell to 2.49 billion francs from 4.96 billion francs.

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 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 SNB distributed 1 billion francs to the government and cantons.

Its 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.

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