Swiss Central Bank Loses Over $142 Billion as Franc Strengthens in Value

A general view shows the building of the Swiss National Bank (SNB) in Zurich, Switzerland, on June 23, 2022. Picture taken with a drone. Arnd Wiegmann/Reuters

The Swiss National Bank (SNB) reported a loss of 142.4 billion francs ($142.2 billion) for the first nine months of this year as a stronger franc considerably lowered gains from equity and bond holdings.

This is the largest loss in the central bank’s 115-year history, with SNB crediting the loss to rising interest rates and a strong Swiss franc: the currency has gained more than 6.5 percent over the euro since the beginning of 2022. Foreign investments by SNB lost value when the value of the franc rose; but unlike other banks, the central bank does not face an issue of bankruptcy given its capacity to print money.

SNB also is a joint stock company with nearly 80 percent held in public shares and the rest distributed among private individuals. The Swiss cantons (similar to states) of Berne, Zurich, Vaud, and St. Gallen hold 6.63, 5.20, 3.40, and 3.00 percentages, respectively. Theo Siegert, a German entrepreneur, holds 5.04 percent of the company’s shares.

SNB’s earnings are at risk of significant swings, and profit margins could change by the end of the year. The 2022 preliminary performance results are expected to be reported Jan. 9, 2023.

“These losses may sound like a lot, but the SNB is not a normal company,” said UBS economist Alessandro Bee, according to Reuters.

“The problem is the stagflationary environment where equities lose, bonds lose, gold loses, and the Swiss franc becomes stronger. Normally, bonds and gold gain when equities lose. But that’s not happened in 2022.”

“Normal bankruptcy rules” do not apply, Bee added, as SNB liquidity can be ensured as long as there is market demand for Swiss francs. The bank made a profit of 41.4 billion francs in 2021.

The 142 billion-franc loss this year includes 24.4 billion francs in exchange-related trading, with the company holding stakes in Starbucks and Google owner Alphabet, and gold, which lost 1.1 billion francs in value. More than 800 billion francs have been invested in currency markets over the decade as part of the SNB’s efforts to halt the appreciation of the franc.

Payments to Cantons

The losses may result in the bank skipping payments to the Swiss federal government and cantons in 2023. If this were to happen, it would be the second time in SNB’s history that payments would not be made.

In 2022, canton Zurich received 716 million francs as its share of the 6 billion francs distributed by the central bank.

“The SNB is not a normal bank, it’s a central bank which has other tasks such as price stability and protecting the Swiss economy,” Heinz Taennler, finance director of Zug, told Reuters, adding that missing out on a SNB payment would not be a problem for Zug, unlike other cantons, where dependency levels are higher.

The Swiss central bank raised its key rate to -0.25 percent in June and to 0.5 percent in September as inflation rose. Last month, the year-over-year inflation in Switzerland was calculated at 3.3 percent, with energy going up by 24.1 percent and food by nearly 3 percent.

The strong franc is a major contributing factor to the inflation rate, which is relatively lower compared to other European nations, and the reason for the significance of the Swiss currency and its attribute as a “safe haven” among other financial investments.