The SNB’s profit potential remains intact

This was to be expected given that the Swiss National Bank (SNB) has been operating in an uncertain environment since the beginning of the year. In the first half of 2022, it recorded a loss of CHF 95.2 billion. For comparison: In the same period last year, she had made a profit of 43.5 billion. Suffice it to say that the war in Ukraine and the volatility of mining and agricultural commodity prices have destabilized the markets. The loss in the second quarter surpassed those recorded between January and March, which were 32.8 billion. “She are indeed larger than expected, says Alessandro Bee, senior economist at UBS Research. but you stay within the estimated range; What is extraordinary is that the stock and bond markets developed negatively in the first half of 2022.”

Also read: Confederation and cantons: The SNB’s windfall will not be acquired in 2022

The result of the SNB depends primarily on developments on the gold, foreign exchange and capital markets. Foreign currency positions fell by 97.4 billion Swiss francs. Interest and dividend income amounted to CHF 3.3 billion and CHF 2.3 billion, respectively. Interest-bearing securities and instruments recorded a price loss of 48.7 billion; Securities and equity securities show a loss of 44 billion. On the foreign exchange side, the deficit is 1 0.3 billion.

“Well sized” supplies

As for gold, the SNB has not made any purchases recently. The share has not changed in volume since last year and generated a surplus of 2.4 billion francs. At the end of June, the price for a kilogram of the yellow metal was 55,836 francs compared to 53,548 francs at the end of 2021.

Also read: The use of SNB dividends crystallizes the debates given the announced losses

What are the implications of these losses? In a study published in mid-July, the bank UBS pointed out that if this were to continue in the second half of the year, the SNB’s contributions to the Confederation and the cantons would be called into question. For Arthur Jurus, senior strategist at Bank ODDO BHF in Geneva, the SNB expects such a correction, which lends credibility to its policy of creating reserves. “These are quite large and will allow him to meet his commitments,” he says. Moreover, in his opinion, the losses are not final since we are only halfway through the year. They will lose importance as early as July due to the 7% rise in the US stock markets and the fall in interest rates – the Germans have halved.

“In normal times, profits are distributed according to rules established with the federal government,” adds Alessandro Bee. For 2023 it is still too early to make decisions. Anything can happen in the second half.” And then: “It’s not a comfortable position for the cantons. If I were Finance Minister one of them, I would not include the SNB contribution in the 2023 budget.”

Increased risk of loss

The SNB pointed this out two weeks ago time that its balance sheet has grown significantly since the start of the financial crisis in 2008. “While this increase has improved absolute return potential, it has also increased downside risk,” she said. It can therefore post a profit one year and a loss the following year. In any case, it never pays out the entire distributable part at once, but on the contrary strives for consistency in payments.

Also read the statement: Independence from the SNB: don’t play Russian roulette!

According to Alessandro Bee, there is no need to panic. “The losses in the first half of 2022 do not change the long-term prospects,” he said. The earnings potential of the various SNB portfolios remains intact.”

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