At the start of the year, profit distribution from the Swiss National Bank (SNB) seemed unlikely due to substantial losses in previous years. However, an unexpectedly strong investment year has led to a potential profit of CHF 62.5 billion after nine months, raising the possibility of a CHF 2 billion distribution to the Confederation and cantons. Factors contributing to this recovery include rising values in equities, bonds, and gold, albeit with ongoing uncertainties that may affect future profits.
At the start of the year, it appeared that the Confederation and cantons would once again miss out on profit distributions from the Swiss National Bank (SNB). The impact of two consecutive years of losses, particularly the unprecedented balance sheet loss of 132 billion Swiss francs in 2022, was profound.
A Remarkable Year for Investments
However, this exceptionally unique financial year has prompted a review of the situation. It now seems plausible that the public sector could receive a distribution. The final calculations will occur at the year’s end, but to date, both risky and defensive investments have significantly risen, resulting in an unexpected increase in SNB profits.
In the first half of the year, the SNB reported a profit of CHF 56.8 billion, with an additional CHF 5.7 billion gained in the third quarter. This brings the total profit for the first nine months to an impressive CHF 62.5 billion. Should profits continue to rise and exceed CHF 65 billion by year-end, UBS economists suggest that the distribution rules would permit a payout of CHF 2 billion to the Confederation and cantons.
The turnaround stems from a mix of factors. Since the year’s beginning, asset values have increased across various investment channels. Whether in equities, bonds, or gold, many areas have seen positive growth. Additionally, despite a strengthening in the third quarter, the Swiss franc’s depreciation has contributed to rising profits, as a weaker franc results in higher amounts when foreign currency investments are converted into Swiss francs.
Profits Surpassing Long-Term Averages
In the realm of equities, the overall positive sentiment in global stock markets has generated a price gain of 27.9 billion Swiss francs over nine months. Concurrently, lowered key interest rates from central banks have boosted bond yields by 6.7 billion francs. Gold, a traditional crisis investment, has also benefited from heightened geopolitical uncertainty, leading to a rise in the value of gold holdings by 16.6 billion Swiss francs.
It’s unusual for equities, government bonds, and gold to all trend upward simultaneously, while the franc weakens. According to UBS economists, such a situation has not been seen in a decade. This fortunate alignment may be why the SNB has already exceeded its estimated annual profit potential of 10 to 15 billion francs after just nine months.
While the possibility for profit distribution has emerged, financial policymakers at the federal and cantonal levels should temper their enthusiasm. Ongoing uncertainties, including the upcoming U.S. elections and geopolitical tensions in the Middle East, could drive capital toward the Swiss franc, enhancing its “safe haven” status and potentially erasing recent gains.
5 Billion to the Banks
Notably, the SNB has incurred a loss of CHF 6.2 billion on its Swiss franc investments this year. This loss isn’t attributed to poor investment strategies but mainly to the CHF 5 billion spent on interest for sight deposits held by banks at the SNB. The bank has maintained these payments following the return to positive key interest rates to regulate the money market. While this may seem like a loss, it essentially translates to profit for the banks, making the Swiss franc positions beneficial for them.