Forex, Gold Drive Swiss National Bank’s First-Half Profit

Geneva (July 29)  The  Swiss National Bank  reported considerably stronger profits for the first half of this year compared with the same period last year on the back of gains in its foreign currency holdings and gold, the bank said on Friday.

The SNB said that its profit in the first half of the year was 21.3 billion Swiss francs ($21.8 billion), considerably outperforming the loss of nearly 50 billion francs recorded in the same period a year earlier. The bank reported a gain of 7.6 billion francs on gold holdings, while its profit from foreign currency positions was 13 billion francs in the first half of this year.

“The SNB’s financial result depends largely on developments in the gold, foreign exchange and capital markets,” the bank said.

Early in 2015, the SNB ended its policy of capping the franc to 1.20 against the euro. The subsequent rise in the franc eroded the value of the SNB’s massive foreign currency holdings.

The SNB lost 23.3 billion francs last year, mostly due to losses on its foreign-exchange holdings.

The losses didn’t hamper the SNB’s ability to conduct monetary policy through interest rates and other tools. But it was a symbolic blow, particularly given that other central banks booked large profits as a result of their bond purchase programs.

The SNB’s balance sheet is much larger than the Fed’s as a share of gross domestic product. The Swiss central bank has purchased bonds and equities denominated in other currencies in an effort to weaken the franc. This exposes it to currency risk that other central banks don’t face. When the franc is high, these foreign-currency investments typically lose value, on paper at least, when reported in the Swiss currency. When the franc weakens, the value of these holdings goes up.

The SNB kept its interest rate policy unchanged last month, despite recent strengthening of the franc. The Swiss currency is viewed as a safe haven in times of global uncertainty.

Source: WSJ