By Brian Blackstone
ZURICH--The Swiss National Bank on Monday posted a strong profit for 2016, offsetting some of the steep decline in the previous year, as a stable franc and increases in the value of stocks, bonds and other assets improved the central bank's financial position.
The SNB's said its profit was over 24 billion Swiss francs ($23.6 billion) last year, compared with a paper loss of 23.3 billion francs in 2015 and a 38 billion francs profit in 2014.
The profit related to the SNB's foreign currency investments was over 19 billion francs, and its gold holdings increased 3.9 billion francs in value. It will provide more detailed information in March.
The SNB said it would pay its usual dividend to the federal government and individual states, known as cantons, of 1 billion francs. It will also likely pay an extra dividend of about 500 million francs due to the large size of its profit last year.
There are two sources of the volatile swings in the SNB's financial results in recent years: the SNB's massive balance sheet and the franc's value against other currencies. The SNB has accumulated 645.3 billion francs worth of foreign-currency reserves, which are mostly invested in foreign bonds but also include over 100 billion francs worth of foreign equities. The amount of its foreign reserves is roughly equal to Switzerland's entire gross domestic product.
These assets generate interest and dividend income, but their values are heavily influenced by changes in market prices for the assets and the value of foreign currencies when the valuesare translated back into francs.
When the franc strengthens, as it did sharply in 2015 after the SNB abandoned a ceiling on the franc's value, the franc-based value of the SNB's balance sheet drops. The opposite happens when the franc weakens, which it did against the U.S. dollar last year, though it was mostly stable against the euro.
Like the Swiss, other central banks such as the U.S. Federal Reserve, European Central Bank, Bank of England and Bank of Japan hold large amounts of assets on their balance sheets. In the Fed's case, this has generated massive profit, $100 billion in 2015, most of which are returned to the U.S. Treasury.
Whether a central bank makes profits or losses doesn't influence its ability to conduct monetary policy given the ability of central banks to create money. But it can have a symbolic effect on the public's perception of how well central bankers are doing their jobs.
What sets the SNB apartis that its balance sheet is made up almost entirely of foreign assets while other central banks hold domestic assets.
About 20% of the SNB's foreign investments are in stocks, which it purchases to mirror broad equity indexes.
Another wrinkle in Switzerland is that its central bank has private shareholders in addition to the government, and its stock is listed on the Swiss exchange.
The SNB said Monday that it would pay a dividend of 15 francs a share. Its share price was up 0.6% early Monday at 1,796 francs.
Write to Brian Blackstone at email@example.com
(END) Dow Jones Newswires
January 09, 2017 04:11 ET (09:11 GMT)
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