ZURICH (Reuters) – The Swiss National Bank 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 cut the value of the central bank’s foreign investments.
The loss – the largest in the SNB’s 115-year history – is slightly larger than Morocco’s annual economic output ($132 billion), but the central bank is not in danger of bankruptcy thanks to its ability to create money.
The SNB suffered losses of 141 billion francs on its foreign currency positions as the value of bonds and shares bought during its campaign to stop the appreciation of the safe-haven franc fell.
The figure included exchange-related losses of 24.4 billion as the franc’s strength further reduced the value of its holdings, which include stakes in coffee retailer Starbucks and Google owner Alphabet.
Gold reserves lost 1.1 billion francs in value.
“These losses may seem large, but the SNB is not a normal company,” said UBS economist Alessandro Bi.
“The problem is in a stagflationary environment where stocks are losing, bonds are losing, gold is losing and the Swiss franc is strengthening. Usually bonds and gold arrive when stocks lose. But this did not happen in 2022.”
“Normal bankruptcy rules” do not apply, he added, noting that the SNB, which posted a profit of 41.4 billion francs a year earlier, will always be liquid as long as there is demand for Swiss francs.
However, the loss could mean the central bank will stop payments to the Swiss federal and cantonal governments next year.
The canton of Zurich received 716 million francs as its share of the 6 billion francs distributed by the SNB this year, but said it knew there were no guarantees of central bank cash.
The neighboring canton of Zug said that refusing to pay the SNB would not be a problem.
“The SNB is not a normal bank, it is a central bank with other tasks, such as price stability and the protection of the Swiss economy,” Heinz Tenler, Zug’s chief financial officer, told Reuters.
“We do not depend on payment from the SNB, but I cannot say whether this is the case in other cantons.
Continuing huge 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 it would mean for payouts or its tighter monetary policy.
However, Vice-Chairman Martin Schlegel noted that reducing capital to negative capital would not change the central bank’s approach. He also hoped for a positive long-term return on the bank’s investment.
“We can fulfill our tasks and fulfill our mandate even with negative equity,” he said in an interview published on Friday.
“However, it is important that we have enough equity capital. It promotes confidence in the central bank if it is well capitalized.”
($1 = 0.9972 Swiss francs)
(Reporting by John Revill Editing by Miranda Murray, Kirsten Donovan)