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SNB Results: Big Win After Big Loss in Q4 2018

Summary:
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

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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.

Some extracts from the official statement.

Interim results of the Swiss National Bank as at 31 March 2019

The Swiss National Bank reports a profit of CHF 30.7 billion for the first quarter of 2019.

The profit on foreign currency positions amounted to CHF 29.3 billion. A valuation gain of CHF 0.9 billion was recorded on gold holdings. The profit on Swiss franc positions was CHF 0.6 billion.

The SNB’s financial result depends largely on developments in the gold, foreign exchange and capital markets. Strong fluctuations are therefore to be expected, and only provisional conclusions are possible as regards the annual result.

Income Statement, 1 January - 31 March 2019

SNB Results: Big Win After Big Loss in Q4 2018

Source: snb.ch - Click to enlarge

Profit on foreign currency positions

The profit on foreign currency positions amounted to CHF 29.3 billion.

Interest and dividend income totalled CHF 2.4 billion and CHF 0.7 billion respectively. A gain of CHF 6.9 billion was recorded on interest-bearing paper and instruments. Furthermore, the favourable stock market environment led to a gain of CHF 17.4 billion on equity securities and instruments. Exchange rate-related gains totalled CHF 1.9 billion.

The following numbers are in billion Swiss Francs.

SNB results Q1 2019
(in bn CHF)
Profit BalanceSheet Profit in %
Total Profit on foreign currencies 29.3 822.3 3.56%
Interest income (coupons) 2.4 822.3 0.29%
Dividend income 0.7 822.3 0.09%
Price changes in bonds 6.9 822.3 0.84%
Price changes in equities 17.4 822.3 2.12%
Exchange Rate Gains 1.9 822.3 0.23%

SNB Profit on Foreign Currencies

SNB Results: Big Win After Big Loss in Q4 2018

Source: snb.ch - Click to enlarge

Valuation loss on gold holdings

A valuation gain of CHF 0.9 billion was recorded on gold holdings, which remained unchanged in volume terms. Gold was trading at CHF 41,459 per kilogram at end-March 2019 (end-2018: CHF 40,612).
SNB Results Q1 2019
(in bn CHF)
Profit Balance Sheet Profit in %
Total Profit on Gold………………………….. 0.8 822.3 0.10%

Percentage of gold to balance sheet

The percentage of gold is currently remaining slightly above 5%.

SNB Balance Sheet items
(in bn CHF)
2019 Q1 2018 2017 2016 2015
Gold……………………………………… 43.1 42.2 42.5 39.4 35.5
Total Balance Sheet 822.3 812.8 843.3 746 640
Gold in % of Balance Sheet 5.24% 5.20% 5.04% 5.28% 5.55%

Balance Sheet

The balance sheet has expanded by over 68.3 bn. francs by 8.81%.

(in bn CHF) 2019 Q1 2018
Increase in %
SNB balance sheet in CHF………………. 822.3 812.8 1.17
Swiss nominal GDP in CHF 689.9 689.9
% of GDP 119.19% 116.11%

SNB Balance Sheet for Gold Holdings for Q1 2019

SNB Results: Big Win After Big Loss in Q4 2018

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, which totalled CHF 0.6 billion, 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.

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

(in bn CHF) 2019 Q1 2018 Q1
Change in %
Income through negative interest rates 0.5 0.5
SNB balance sheet 822.3 812.8
in % of balance sheet 0.06% 0.06%

SNB Result for Swiss Franc Positions for Q1 2019

SNB Results: Big Win After Big Loss in Q4 2018

Source: snb.ch - Click to enlarge

SNB Liabilities

Electronic Money Printing: Sight Deposits

Sight deposits is the biggest part of SNB interventions.

In the current business cycle sight deposits are falling slightly, because companies invest more, instead of holding cash.

(in bn CHF) 2019 Q1 2018
Change in%
Total Sight Deposits 577 578.6 -0.28%
Balance Sheet 822.3 812.8 1.17%
Sight Deposits % of balance sheet 70.17% 71.19%

Paper Printing

Banknotes in circulation: -2.25 bn francs to 79.9 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.

Provisions for currency reserves

The SNB seems to think that the price gains in bonds and in stocks are forever sure.

While she will do some adjustment for FX changes, for a potentially stronger franc.

As at the end of March 2019, the SNB recorded a profit of CHF 30.7 billion before allocation to the provisions for currency reserves.

In accordance with art. 30 para. 1 of the National Bank Act (NBA), the SNB is required to set aside provisions permitting it to maintain the currency reserves at the level necessary for monetary policy. The allocation for 2019 will be determined at the end of the year.

SNB Liabilities and Sight Deposits for Q1 2019

SNB Results: Big Win After Big Loss in Q4 2018

Source: snb.ch - Click to enlarge


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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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