The good years have started, increasing SNB Profits

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 in 2017, the picture is changed. Assuming a “biblical” cycle of seven good years and seven bad years, the SNB could now increase profits every year – thanks to a weaker franc and the seven good years.

… until the next recession comes and the seven bad years start.

At that moment the SNB will have to tolerate a massive loss:

• Given that the recession would be inflationary, she will tolerate a far stronger franc, for example EUR/CHF may fall from 1.25 to 0.90 over some years.
• Which will result into up 60-80 bn. CHF loss at the peaks.

SNB Results Longterm H1 2017

- Click to enlarge

Interim results of the Swiss National Bank as at 30 September 2017.

The Swiss National Bank (SNB) reports a profit of CHF 33.7 billion for the first three quarters of 2017.

A valuation gain of CHF 2.3 billion was recorded on gold holdings. The  profit on foreign currency positions amounted to CHF 30.3 billion, and the profit on Swiss franc positions to CHF 1.5 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–30 September 2017

Source: snb.ch - Click to enlarge

Profit on foreign currency positions

The net result on foreign currency positions amounted to CHF 30.3 billion.

Interest income accounted for CHF 6.8 billion and dividends for CHF 2.5 billion. Movements in bond prices differed from those in share prices. A loss of CHF 4.0 billion was recorded on interest-bearing paper and instruments. By contrast, equity securities and instruments benefited from the favourable stock market environment and contributed CHF 14.4 billion to the net result. Overall, exchange rate-related gains amounted to CHF 10.5 billion.

SNB Profit on Foreign Currencies Q1-Q3 2017

Source: snb.ch - Click to enlarge

Valuation gain on gold holdings

A valuation gain of CHF 2.3 billion was achieved on gold holdings,  which remained unchanged in volume terms. Gold was trading at CHF 40,071 per kilogram at end-September 2017 (end-2016: CHF 37,885).

Percentage of gold to balance sheet

The percentage of gold compared to the total balance sheet is falling.

Balance Sheet

The balance sheet has expanded by over 66.5 bn. francs by 8.91%.

Balance Sheet as at 30 September 2017

Source: snb.ch - Click to enlarge

Profit on Swiss franc positions

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.

SNB Result for Swiss Franc Positions, Q1-Q3 2017

Source: snb.ch - Click to enlarge

SNB Liabilities

Electronic Money Printing: Sight Deposits

Sight deposits is the biggest part of SNB interventions.

Paper Printing

Banknotes in circulation: -1.6 bn francs to 76.5 bn. CHF

The old form of a printing press, today a less important form of central bank interventions.

Provisions for currency reserves

As at end-September 2017, the SNB recorded a profit of CHF 33.7 billion, before the allocation to the provisions for currency reserves.

In accordance with art. 30 para. 1 of the National Bank Act, 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 2017 will be determined at the end of the year.

SNB Liabilities and Sight Deposits, Q3 2017

Source: snb.ch - Click to enlarge