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SNB Profit in 2019: 48.9 billion (2018: loss of CHF 14.9 billion, 2020 Does not Look Good)

The increasing volatility of SNB Earnings

Annual results are not really definite. Given that the SNB accumulates foreign currencies with interventions, they have huge swings.

But the SNB may lose 50 billion in one year and win 60 billion in the next year or vice verse.

Good years of the Credit Cycle

This trend was stopped in 2016, even without the need for a cap on the franc. But one should consider that we are in the good years of the credit cycle now. Bad quarters like the one in Q4/2018 are rare now.

Franc will rise again with crisis or inflation

With a new financial crisis or a with a big rise of inflation, the run into the Swiss franc will start again.

And this at an exchange rate that is not digestible for the SNB.
We considered that after an inflationary period the

  • EUR/CHF will fall to 0.90
  • and USD/CHF to 0.75.

And this will lead to a massive SNB loss around 150 billion CHF.

However, we are not there yet: Inflation is low and interest rates even lower.

2020

The year 2020, for now, does not look that good.

The franc has appreciated by 3% and stock markets have fallen.
This means less assets and higher liabilities.

[ProfitLoss2019]

Some extracts from the official statement.

 

Interim results of the Swiss National Bank as at 30 September 2019

Total Profit: 40.3 billion.

Gold: Gain 6.9 billion

Swiss franc positions: Gain CHF 2.1 billion (thanks to negative interest rates).

For the financial year just ended, the SNB has set the allocation to the provisions for currency reserves at CHF 5.9 billion.

Income Statement for 2019

Income Statement for 2019

Source: snb.ch - Click to enlarge

Profit on foreign currency position

The profit on foreign currency positions was CHF 40.3 billion (2018: loss of CHF 16.3 billion).

Interest and dividend income totalled CHF 9.2 billion and CHF 3.7 billion respectively. A gain of CHF 12.7 billion was recorded on interest-bearing paper and instruments. Furthermore, the favourable stock market environment led to a gain of CHF 32.9 billion on equity securities and instruments. Exchange rate-related losses totalled CHF 18.1 billion.

 

The following numbers are in billion Swiss Francs.

 

SNB results Q3 2019
(in bn CHF)
Profit BalanceSheet Profit in %
Total Profit on foreign currencies 40.3 860.9 4.68%
Interest income (coupons) 9.2 860.9 1.07%
Dividend income 3.7 860.9 0.43%
Price changes in bonds 12.7 860.9 1.48%
Price changes in equities 32.9 860.9 3.82%
Exchange Rate Gains -18.1 860.9 -2.10%

SNB Profit on Foreign Currencies

SNB Profit on Foreign Currencies

Source: snb.ch - Click to enlarge

Valuation gain on gold holdings

SNB’s biggest winner in 2019 was gold. Prices rose by 14%.
But we also remember that the Swiss Franc usually rises together with gold. This happened in particular in Q1/2020, where we do not have SNB results yet.

SNB Results Q3 2019
(in bn CHF)
Profit Balance Sheet Profit in %
Balance Sheet
Profit in % of Gold Positions
Total Profit on Gold………………………….. 6.9 860.1 0.80% 14.0%

Percentage of gold to balance sheet

The percentage of gold has risen to 5.71% thanks to these rising prices.
The SNB has maintained its quantity of gold.

 

SNB Balance Sheet items
(in bn CHF)
2019
2018 2017 2016 2015
Gold………………….. 49.1 42.2 42.5 39.4 35.5
Total Balance Sheet 860.9 812.8 843.3 746 640
Gold in % of Balance Sheet 5.71% 5.20% 5.04% 5.28% 5.55%

 

Balance Sheet

The balance sheet has expanded by over 46.1 bn. francs by 5.67%. Especially during summer there were bigger SNB interventions.

 

(in bn CHF) 2019
2018
Increase in %
SNB balance sheet in CHF………………. 860.9 817 5.67%
Swiss nominal GDP in CHF 700 (est.) 689.9 1.46%
% of GDP 122.7% 117.81%

SNB Balance Sheet for Gold Holdings for 2019

SNB Balance Sheet for Gold Holdings for 2019

Source: snb.ch - Click to enlarge

Profit on Swiss franc positions

The SNB maintains its profitability, last but not least, thanks to the reduction of the profitability of banks. When too many funds arrive on their accounts, they must deposit them on their sight deposit account at the SNB.

The profit on Swiss franc positions totalled CHF 2.1 billion (2018: CHF 2.0 billion). It largely resulted from negative interest charged on sight deposit account balances.

Negative Interest rates

Furthermore, the SNB harms the Swiss economy, when it reduces the profits of Swiss banks by negative interest rates. But with this measure she maintains her own profitability.

The SNB obtained slightly less money for negative rates, while sight deposits were slightly up (see below). The reason might that banks better use their exoneration from negative rates.

Still, as compared to the FX profits or gains on equities, this number is relatively low.

 

(in million CHF) 2019
2018
Change in %
Income through negative interest rates 1938.2 2048.4 -5.00%
SNB balance sheet 860.9 812.8 +2.8%
in % of balance sheet 0.22% 0.25%

SNB Result for Swiss Franc Positions for 2019

SNB Result for Swiss Franc Positions for 2019

Source: snb.ch - Click to enlarge

SNB Liabilities

Electronic Money Printing: Sight Deposits

Sight deposits is the biggest part of SNB interventions.

In the third quarter, the SNB intervened again, increasing sight deposits and its debt towards the Swiss state.

 

(in bn CHF) 2019
2018
Change in%
Total Sight Deposits 591.4 574.8 +2.89%
Balance Sheet 860.9 812.8 +5.92%
Sight Deposits % of balance sheet 68.70% 70.72%

Paper Printing

Banknotes in circulation: -2.54 bn francs to 79.7 bn. CHF

This old form of a printing press, today a less important form of central bank interventions. It showed that safe-haven Swiss francs, e.g. 1000 franc bank notes are currently less in demand than previously.

 

 

SNB Liabilities and Sight Deposits for 2019

SNB Liabilities and Sight Deposits for 2019

Source: snb.ch - Click to enlarge

Provisions for currency reserves

The provisions for currency reserves cannot cover the potential loss 150 bn mentioned in the beginning.

The SNB has only added the minimum of 8% of the result to these provisions.

SNB’s Profit Game:

Then the SNB carries forward the profits of the previous years in form of a “distribution reserve”. The idea is to be able to pay a distribution/dividends even in bad years.

Dividend yield

For investors: The dividend yield is extremely low. Buying the SNB stocks is a bet on the stock price.

Dividend Share Price Dividend Yield
15  5420  0.28%

While the Swiss confederation and cantons, the SNB stock is a nice investment.

Distribution Result Dividend Yield
4 bn 48.85 bn 8.2%

On the other side, they have a higher risk.
They must pay in the case of an SNB default, unless they choose the other option:
The central bank may simply be liquidated:

Art. 32 Liquidation
1
The joint-stock company Swiss National Bank may be liquidated by means of a
federal statute. This statute shall also lay down the liquidation procedure.
2
In case of a liquidation of the National Bank, the shareholders shall receive in cash
the nominal value of their shares as well as reasonable interest for the period of time
since the decision to liquidate the National Bank became effective. The shareholders
shall not have any additional rights to the assets of the National Bank. Any
remaining assets shall become the property of the new central bank.

(source)

 

 

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George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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