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SNB to Post Profit of CHF49 Billion for 2019

SNB to Post Profit of CHF49 Billion for 2019

13 January 2020

The Swiss National Bank has informed it expects to close 2019 with an annual profit of CHF49 billion (around $50.29 billion per latest exchange rate), as gains from foreign stocks and bonds purchased have influenced its financial results.

Huge Profits

             SNB will post 2019 annual profit of CHF49 billion, out of which CHF40 billion was made from foreign currency positions, whereas CHF6.9 billion is due to valuation of the bank’s gold holdings. Last year the bank recorded a loss of CHF15 million. The proposed dividend for this year is unchanged – CHF15 per share. The definitive numbers for last year will be disclosed on March 2.

Huge Payout

             As the SNB recorded profit, it will pay out CHF2 billion to Swiss cantons and federal government for last year, and it will negotiate with the finance ministry on additional payout for last year and this year. Distribution of the SNB’s profits is regulated by the convention between the bank and the finance ministry. According to it for years 2016-2020 minimum payout of CHF1 billion must be distributed to cantons and government, however if reserves of the bank are bigger than CHF20 million, the payout rises to CHF2 billion. In last years only in 2013 cantons did not receive any financial support from the SNB, as back then the bank recorded loses of CHF23.25 billion.

Extra Support

             Additionally to the huge payout there is possibility of extra support – this is currently under discussion with the finance ministry. There is growing social pressure on the SNB to divide its wealth with cantons and government. Last Thursday the Swiss Federation of Trade Unions on its annual conference has called for the SNB to redistribute more surplus money to aid Swiss pension system. However, the SNB’s President Thomas Jordan has stated a few weeks ago that mixing monetary and social policy would be dangerous.

Increased Activity

             In the last decade or so, the SNB’s profits have increased significantly. Since 2008 whenever the central bank recorded profits they were bigger than ever before, but simultaneously if it posted losses, they were also greater than previously. The explanation for that partly lies in the Swiss bank eagerness to intervene on the financial market. In a bid to stabilize the Swiss franc’s exchange rate, the central bank has been buying foreign currencies – for instance it often decide to buy euro, dollars – or other assets – foreign bonds, stocks. The valuation of gains, interest payments and dividends from its massive bulk of shares, stocks and other financial instruments is reflected in its financial report. At the end of 2019 the SNB had more than CHF804 billion in foreign currency investments, which is more than the output of the entire Swiss economy.

SNB’s Goal

             All these purchase are done to weaken the franc. The main goal of the central bank is to keep the CHF exchange rate stable, while also keeping inflation in line. The main challenge is preventing the Swiss franc from overvaluation, especially in difficult geopolitical times, when uncertainty triggers hunger for safe-haven assets – one of the main example of these is the Swiss franc. Making a profit is not necessary for the SNB, and it is not its objective.

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