- Central banks hit by declines in bond, stock prices
- A stronger Swiss franc also caused losses
- SNB is not facing bankruptcy, say analysts
- Banks can operate with negative equity, SNB said
ZURICH, Oct 31 (Reuters) – The Swiss National Bank ( SNBN.S ) lost 142.2 billion Swiss francs ($142.60 billion) in the first nine months of 2022, it said on Monday, as rising interest rates and a stronger Swiss franc reduced the value of the bank’s foreign investments. center.
The loss – the largest in the SNB’s 115-year history – was less than Morocco’s annual economic output ($132 billion), but the central bank did not face bankruptcy because of its ability to create money.
The SNB lost 141 billion francs from its foreign currency position as bonds and shares bought during its campaign to curb the rise of the safe-haven franchise declined in value.
The figure includes exchange rate-related losses of 24.4 billion as the stronger franc further reduced the value of its holdings, which include stakes in coffee retailer Starbucks ( SBUX.O ) and Google owner Alphabet ( GOOGL.O ).
Gold holdings lost 1.1 billion francs in value.
“These losses may sound like a lot, but the SNB is no ordinary company,” said UBS economist Alessandro Bee.
“The problem is a stagflation environment where equities lose, bonds lose, gold loses and the Swiss franc gets stronger. Usually bonds and gold gain when equities lose. But that’s not the case in 2022.”
“Normal bankruptcy rules” do not apply, he added, noting that the SNB, which made a profit of 41.4 billion francs a year earlier, will always be liquid as long as there is demand for Swiss francs.
The losses, however, mean that the central bank halted payments to the Swiss federal and cantonal governments next year.
Canton Zurich received 716 million francs as its share of the 6 billion francs distributed by the SNB this year, but said it knew there was no guarantee of the central bank’s cash.
The nearby canton of Zug said leaving the SNB payment would not be a problem.
“The SNB is not a normal bank, it is a central bank that has other tasks such as price stability and protecting the Swiss economy,” Heinz Taennler, Zug’s finance director, told Reuters.
“We do not depend on payment from the SNB, but I cannot say if that is the case for other cantons.
Continued large losses could wipe out the SNB’s equity, which stood at 204 billion francs at the end of 2021.
The SNB, which recently started raising interest rates to fight inflation, declined to comment on the losses or what they meant for payments or its tighter monetary policy.
However, Vice Chairman Martin Schlegel indicated that the decline into negative equity would not change the central bank’s approach. He also expects a positive long-term return on the bank’s investment.
“We can continue our work and fulfill our mandate even with negative equity capital,” he said in an interview published on Friday.
“However, it is important that we have sufficient equity. It helps the central bank’s credibility if it is well capitalized.”
($1 = 0.9972 Swiss francs)
Reporting by John Revill, Editing by Miranda Murray, Kirsten Donovan
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