In the first nine months of 2022, the Swiss National Bank (SNBN.S) reported a loss of 142.2 billion Swiss francs ($142.60 billion), as the worth of the central bank’s international investment was reduced by higher interest rates and the stronger Swiss franc.
The loss, which was the biggest in the SNB’s 115 years history, was somewhat higher than Morocco’s annual economic production ($132 billion), but because the central bank can print money, it is not in danger of going bankrupt.
The bonds and stocks the SNB purchased as part of its effort to stop the safe-haven franc from appreciating lost value, resulted in a loss to the SNB of 141 billion francs out of its foreign currency positions.
As a result of the stronger franc further depreciating its holdings, which include investments in coffee giant Starbucks (SBUX.O) and the popular search engine Google owner Alphabet, the total includes exchange rates-related damages of 24.4 billion (GOOGL.O).
The value of gold assets dropped by 1.1 billion francs.
Although these losses may seem significant, the SNB is not a typical business, according to UBS economist and researcher Alessandro Bee.
The issue is the stagflationary environment in which gold loses value while equities, bonds, and the Swiss franc gain value. Bonds and gold typically increase when stocks decline. But in 2022, that hasn’t happened.
The SNB, having made a 41.4 billion franc gain a year earlier, would remain liquid provided there is interest for Swiss francs, he continued, adding that normal bankruptcy laws do not apply.
However, the loss might result in the central bank ceasing payments to the federal and cantonal government parties of Switzerland in 2019.
The SNB distributed 6 billion francs this year, and the Canton of Zurich collected 716 million francs as its portion. However, the canton claimed to be aware that the central bank’s cash was not guaranteed.
Zug, a nearby canton, indicated there would be no issue with skipping an SNB payout.
Heinz Taennler, Zug’s reliable finance director, explained that the SNB is not a typical bank but rather a central bank with additional responsibilities for maintaining price stability and safeguarding the Swiss economy.
While other cantons are not so fortunate, they are not reliant on SNB funding.
The SNB’s equity, which was valued at 204 billion francs by the end of 2021, could be wiped out if the enormous losses continue.
The SNB declined to speak on the loss, what it would mean for a payout, or its more stringent monetary policy. The SNB has recently been raising interest rates to fight inflation.
However, Vice Chairman Martin Schlegel said the central bank’s strategy would not change if equity fell into the negative. He also anticipated that the bank’s investments will provide a profit over the long term.
In an interview that was released on Friday, he claimed that one may carry out their duties and accomplish their mandate albeit with minus equity capital.
However, it is crucial that there’s enough equity. A central bank’s credibility is enhanced by its level of capital.
Meanwhile, on the flip side of things, embattled bank Credit Suisse (CSGN.S) on Monday provided further information about its strategy to collect 4 billion Swiss francs (about $4.01 billion) among investors to help it combat the largest crisis in its 166-year existence.
The second-largest lender in Switzerland is raising new capital to finance a restructuring that will result in thousands of job cuts and a change in emphasis away from investments banking towards the less volatile field of wealth management.
A number of scandals and losses have damaged its reputation, including a $5.5 billion deficit caused by the collapse of the American investment firm Archegos. In addition, it was forced to freeze $10 billion in supply chain finance funds connected to the bankrupt British financier Greensill.
