SNB: Q1 loss of CHF 6.8 bn

The Swiss National Bank reported a first-quarter loss of 6.8 billion Swiss francs ($6.92 billion) on Thursday, highlighting the volatility its massive balance sheet creates for the central bank’s earnings.

The SNB reported a profit of 7.9 billion francs a year ago. This year’s loss was mainly due to a loss of 7 billion francs on its foreign currency positions, which have soared to 768 billion francs.

Higher interest rates in the United States and in the eurozone reduced the value of the SNB’s bond portfolio, while the weaker dollar and the downturn in the equity markets cut the value of the SNB’s investments.

The losses were partly offset by dividend payments from the SNB’s massive stock portfolio and the 0.5 billion francs it got from Swiss franc positions, mostly from the negative interest it charges on sight deposit accounts.

The SNB reported a loss of 0.2 billion francs valuation from its unchanged level of gold holdings.

Profits and losses play no role in determining the SNB’s monetary policy, which aims to maintain price stability in Switzerland, defined as an annual inflation rate of less than 2 percent.

Foreign exchange positions were inflated by SNB currency market interventions in the first half of 2017 in order to meet the demand for the safe-haven franc ahead of last year’s French presidential elections.

The interventions, which have since been scaled back, and negative rates are the cornerstone of SNB’s strategy to weaken the Swiss franc, whose high value is a drag on Switzerland’s export-orientated economy.

The franc has weakened this year and breached the symbolic 1.20 level against the euro EURCHF= this month.

The central bank, however, is unlikely to change course, with Chairman Thomas Jordan recently saying the exchange rate situation remained “fragile”.

“The SNB will be one of the last banks to return to positive interest rates, so we would expect the franc to continue weakening in the coming months,” said Alessandro Bee, an economist at UBS, which expects the franc to reach 1.22 versus the euro in 12 months.

“Making a loss in the first quarter is not a major blow for the SNB, which will mainly want to make sure the recent weakening of the franc is not reversed,” he added.

The franc’s weakness comes as a relief to the SNB which, since the global financial crisis of 2007-2008, has battled to prevent a strong currency hurting exports and pushing the affluent Alpine economy into recession. Since abandoning the cap, the SNB has continued to intervene heavily in foreign exchange markets to weaken the currency. The result has been a massive accumulation of foreign currency assets on its balance sheet — CHF744 billion ($756 billion) at the end of 2017 (generating a profit of almost CHF50 billion last year).