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SNB Reduced Loss from 50 Billion in June to 23 Billion

Summary:
According to the latest news release, the Swiss National Bank expects an annual loss of 23 billion CHF, after reporting a loss of 50 billion at the end of June. Primarily thanks to the stronger dollar, the SNB was able to achieve unrealized gains of 27 billion CHF in the second half. This reduced her annual loss to 23 billion. With its rate hike, Fed is helping the SNB: the dollar has appreciated by 6% since July. Balance Sheet The SNB balance sheet looks as follows. In this post we concentrate on liabilities and owner’s equity (latest data here) For an overview of the assets see here. Liabilities: SNB liabilities have two important components: — Owner’s Equity: The real reserves for the SNB are the owners’ equity. The SNB is a public company (symbol SNBN:SW)Changes in FX markets contribute most to movements in SNB profit & loss and in owners’ equity. — Sight Deposits:  In times of low inflation the principal mean of financing interventions.   Latest update (January 2016) The latest SNB balance sheet data show that the Fed is helping the Swiss National Bank. The Fed is moving towards a rate hike, and consequently the dollar is appreciating. Primarily thanks to the stronger dollar, the SNB was able to achieve unrealized gains of 27 billion CHF since July. Still one should remember that all these gains are paper gains.

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According to the latest news release, the Swiss National Bank expects an annual loss of 23 billion CHF, after reporting a loss of 50 billion at the end of June. Primarily thanks to the stronger dollar, the SNB was able to achieve unrealized gains of 27 billion CHF in the second half. This reduced her annual loss to 23 billion. With its rate hike, Fed is helping the SNB: the dollar has appreciated by 6% since July.

Balance Sheet

The SNB balance sheet looks as follows. In this post we concentrate on liabilities and owner’s equity (latest data here)

SNB Reduced Loss from 50 Billion in June to 23 Billion

For an overview of the assets see here.

Liabilities:

SNB liabilities have two important components:

Owner’s Equity: The real reserves for the SNB are the owners’ equity. The SNB is a public company (symbol SNBN:SW)
Changes in FX markets contribute most to movements in SNB profit & loss and in owners’ equity.

Sight Deposits:  In times of low inflation the principal mean of financing interventions.

 

Latest update (January 2016)

The latest SNB balance sheet data show that the Fed is helping the Swiss National Bank. The Fed is moving towards a rate hike, and consequently the dollar is appreciating. Primarily thanks to the stronger dollar, the SNB was able to achieve unrealized gains of 27 billion CHF since July.

Still one should remember that all these gains are paper gains. For two reasons one should be suspicious:

  1. A big speculative position dollar against CHF is building up.
  2. The SNB continues to intervene. Buying dollars is currently not useful, because the SNB would sell them a lower price. We remember that the summer 2011 interventions were focused on the dollar at around 0.80 CHF.

The following table gives an overview of the balance sheet, with focus on liabilities, owner’s equity and interventions.

Year/Quarter Total Liabilities Owner's Equity (&provisions) FX Trends EUR/CHF USD/CHF Gold (in CHF) SNB Interventions SNB results in period Major driver of results
November 2015 635 bln. CHF 68.9 bln. Spec. pos. against CHF rising 1.0840 1.01 1115 1 bln. CHF Gain: 10 bln
USD stronger
October 2015 621 bln. CHF 58.1 bln. Fed moves towards rate hike 1.0873 0.9880 1127
2 bln. CHF Gain: 7.4 bln
USD stronger
Q3/2015 613 bln. CHF 50.4 bln. Speculative pos. against CHF building 1.0877 0.9732 1107
5 bln. CHF Gain: 16 bln
USD & EUR stronger
Q2/2015 577 bln. 34.2 bln. Greek crisis 1.0419 0.9355 1088 15 bln CHF Loss: 22 bln. European stocks & US Treasuries
Q1/2015 581 bln. 56 bln. Draghi QE leads to end of EUR/CHF peg 1.0437 0.9726 1168 67 bln. CHF Loss: 30 bln.
High loss on EUR
Q4/2014 561 bln.  86 bln. Rouble crisis trigger new SNB interventions 1.2029 0.9942 1179 20 bln. CHF Gain: 10 bln.
Most on USD
Q3/2014 522 bln. 76 bln. Oil price starts collapse 1.2067 0.9552 1139 None Gain: 12 bln.
USD, GBP stronger
Q2/2014 508 bln. 64 bln. Draghi talks of QE 1.2143 0.8869 1171 None Gain: 12 bln. all types of assets: gold, bonds, stocks
Q1/2014 495 bln. 52.3 bln. Ukraine crisis 1.2184 0.8847 1153 None Gain: 4 bln.
2013 490 bln. 48 bln. Fed ending Quantiative Easing 1.2276 0.8931 1107
None Loss: 10 bln. Heavy losses on gold
2012 499 bln. 58 bln. Massive SNB interventions 1.2040 0.9205 1528
160 bln. CHF Gain: 5 bln. Gains on gold and equities.
2011 346 bln. 53 bln. EUR/CHF peg introduction, 1.25 0.9442 1640
Focus on USD intervention Gain: 10 bln. Strong gains on gold
2010 270 bln. 43 bln. EUR falls from 1.40 to 1.24. 1.2040 0.9340 1246
interventions until April 2010 Loss: 23 bln.
Gold reduced FX loss
2009 207 bln. 66 bln. Rising JPY, Falling USD after QE 1.4837 1.0354 1121
interventions with sight deposits and swaps Gain: 8 bln. Gains on swaps, treasuries
2008 214 bln. 58 bln. Falling USD with sub prime crisis. EUR unchanged 1.4850 1.0673 989
interventions with swaps Loss: 7 bln. Loss on USD
2007 126 bln. 65 bln. Subprime crisis: EUR and USD start falling vs. CHF 1.6547 1.1329 1046
None Gain: 5 bln. Gains on swaps, treasuries
2006 112 bln. 60 bln. 1.6082 1.2265 800
None

June 2015:

The SNB lost 23 bln. of owners’ equity.
Falling prices of the bonds and stocks porfolio let to further losses. Two examples:

  1. the yield of 5 Year US Treasuries fell from 1.37% at end March to 1.61% at the end of June. This implied falling bond prices.
  2. The German DAX fell from over 12000 points still in April to 10944 at the end of June.

May 2015:

A loss of 1.5% in euro and Canadian dollar and falling bond prices let to another loss of 8 billion Francs in owners’ capital.

The Stronger Dollar Helped in 2014

The EUR fell from 1.38$ in Q2/2014 to 1.24$ in Q3/2014 and close to 1.10$ in Q4. During the times of the peg, it implied that the USD/CHF improved similarly, from 0.87 in March 2014 to 0.89 in Q2/2014, 0.95 in Q3 and to parity at the end of 2014. The stronger US Dollar helped to increase the value of the SNB assets and of the whole balance sheet.

Between the first and the third quarter of 2014, the SNB did not intervene. Thanks to the stronger dollar and the peg to the euro, the owners’ equity rose and let to the very good 2014 results of 38 billion CHF. However, the losses until end May amount to 46 billion, more than the profit of 2014.

The SNB had to intervene again, with the Russia crisis in November/December. When European QE was looming in January, the SNB decided to exit from the peg.

References:

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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