The Swiss National Bank expects to swing to an annual loss of 15 billion Swiss francs ($15.29 billion) for 2018, it said on Wednesday, as slumping stock markets and the rising franc slashed the value of its massive foreign currency investments.
The loss would reverse the record 54.4 billion franc profit the central bank chalked up during 2017, and mainly reflected losses from its foreign currency holdings built up during the SNB’s fight to tame the strong franc.
The SNB said it expected a loss of 16 billion francs from its foreign currency positions – which are mainly held in bonds and shares – which reached 775 billion francs last year, a figure larger than the entire Swiss economy.
Equities, including U.S. bluechips like Apple and Facebook, make up 20 percent of the SNB’s massive holdings of foreign currencies. U.S. and European stock benchmarks fell in 2018, while the franc gained against most of its G-10 peers, leading to a 16 billion-franc loss on that portfolio alone.
The SNB’s results statement on Wednesday is preliminary and it will provide further details on March 4.
With a pile of foreign exchange that exceeds the size of Switzerland economy, the central bank, led by Thomas Jordan, is at risk of big swings when markets get turbulent. However, any profit or loss has no bearing on monetary policy, which is determined more by the strength of the franc.
The currency’s rally against the euro at the end of last year damped price pressures, with data Wednesday showing core inflation at just 0.3 percent in December.
The franc’s strength also left its mark on the SNB’s holdings of foreign currency, which dropped 2.7 percent to 729 billion francs in December, the biggest slide since 2012, according to separate figures.
Unusually among central banks, the SNB is listed on the local stock exchange and shareholders will receive a dividend. The biggest proportion of shares is held by public institutions, including cantonal governments and cantonal banks. There are also some 2,000 private investors, whose voting rights are very limited.
The SNB also recorded a valuation loss of 300 million francs on on its gold holdings and a net result of 2 billion on its Swiss franc position, which would include income from the negative interest it charges on sight deposit accounts.
Despite the loss SNB said it expected to make a profit distribution of 2 billion francs to Swiss cantons and the federal government after its record profit in 2017 boosted its distribution reserve.
It also plans to pay shareholders a dividend of 15 francs per share, the maximum allowed.