Swiss central bank in the gold rush

If the Swiss National Bank (SNB) were a normal joint-stock company, its shareholders would be rejoicing. Finally, the SNB reports a profit of CHF 51.5 billion for the first nine months of 2019. But firstly, the result for the year as a whole could also be significantly lower. And secondly, only a small part of the profits goes to the shareholders anyway.


The dividend for private shareholders, who own almost half of the SNB’s capital and 24% of the voting rights, is limited to a maximum of 6% of the share capital or CHF 15 per share. And the profit share of the public sector amounts to a maximum of CHF 2 billion. Of this, two thirds goes to the cantons and one third to the Confederation. Such beneficiaries can do whatever they want with the warm rain.


The profit of the Swiss central bank is not the result of a return target, but the result of its monetary policy. In order to weaken the franc and thus help the export industry and tourism businesses, the SNB has built up a gigantic stock of foreign currency over the years. By the end of September, this had reached almost CHF 800 billion. The SNB invests the money in bonds and shares, among other things. And depending on how the value of these investments develops, the result rises or falls.


A pile of gold in the cellar

In the course of the year to date, share prices have risen sharply. According to the interim report, this brought the SNB book profits of CHF 22.4 billion by the end of September. A major boost came in the third quarter as the European Central Bank (ECB) and the US Federal Reserve (Fed) stepped up their expansive monetary policy again. Share prices rose due to (still) lower interest rates.

As general uncertainty grew as a result of geopolitical and economic risks, many investors sought their salvation in gold. The SNB has a fairly large pile of these in its basement. The price increase for the precious metal, driven by demand, brought the central bank book gains of CHF 7.3 billion.

Negative interest rates of 0.75 percent, which the banks have to pay for sight deposits they park with the SNB, also played a role in the earnings trend. As a result, the central bank has so far collected a good CHF 1.5 billion over the course of the year. Credit institutions and asset managers are increasingly being put off by this burden. They have hardly dared to pass on the penalty interest to their customers so far.

The SNB is responding to the banks’ publicly voiced criticism by raising the exemption limit for paying negative interest rates from November onwards. So far, sight deposits of around CHF 180 billion have been affected by the penalties. According to calculations by the major bank UBS, this amount will only amount to around CHF 80 billion in the future. As a result, the SNB’s income from negative interest rates is likely to halve to just over CHF 1 billion next year.

Despite interest rate cuts by other central banks such as the Fed and the ECB, UBS sees risks for the further development of the SNB’s financial result. In the event of a global recession, a sharp decline in corporate profits would weigh much more heavily than the outlook for even lower interest rates, writes the bank in a study.