SNB Reverses Projected Loss with Q3 Profit, Despite Previous Losses

The Swiss National Bank (SNB) reported a profit of 1.7 billion francs for the third quarter of 2021, surprising analysts who had anticipated losses. This positive shift was mainly due to an increase in gold holdings and gains from foreign currency investments. The bank benefited from a 1.1 billion franc rise in its gold assets, while foreign currency positions added another seven billion francs to the profit.

Despite these achievements, the bank faced challenges with a 6.1 billion franc loss stemming from its Swiss franc positions, which was largely linked to interest expenses incurred from current account balances held by Swiss banks. Analysts at UBS have advised the federal government and cantons to refrain from expecting profit distributions from the SNB unless the bank reports a profit exceeding 40 billion francs in the fourth quarter.

This encouraging result follows a significant loss of 12.04 billion francs ($13.36 billion) in Q3 of 2022. This previous downturn was triggered by declines in gold holdings, foreign currency investments, and Swiss franc positions, exacerbated by concerns over elevated global interest rates that negatively impacted bond and equity valuations. The bank incurred a loss of 9.16 billion francs from its foreign currency positions during that time.

The decline in global gold prices also led to a 132 million franc loss in the valuation of the bank’s extensive gold reserves, which total 1,040 metric tons. Additionally, Swiss franc positions resulted in a further loss of 2.66 billion francs, primarily due to rising interest costs associated with overnight deposits at commercial banks.

In response to these financial challenges, the SNB opted to reduce interest rates after incurring 5.4 billion francs in interest payments during the first nine months of 2022. This strategic decision is believed to have contributed to the bank’s return to profitability in the third quarter of 2021.