Guest Post: David Versus Goliath – The SNB Against Everybody Else

Tyler Durden's picture

Submitted by Alexander Gloy of Lighthouse Investment Management

David Versus Goliath – The SNB Against Everybody Else

A picture says more than a hundred words, so I wanted to present in graphical terms what happened at the Swiss National Bank over the last few quarters.

Unfortunately, the SNB does not provide foreign currency positions including derivatives on an absolute basis, but here are the unhedged figures:

  • The SNB increased FX positions from less than CHF 100bn at the end of 2009 to 300bn (or 60% of GDP) in Q3 2011. That is a pretty large amount for a small country (boils down to CHF 50,000 for each Swiss citizen).
  • During a turbulent Q3 2011 the SNB enacted a peg with the Euro (1.20) after the Euro briefly reached 1.0067 on August 9.
  • The SNB also bought a lot of USD (doubling its holdings in Q3) after the USD fell to a low of 0.73 on August 9.
  • Overall, the SNB unsuccessfully tried to stem the rise of the CHF versus the Euro since the beginning of 2010, leading to large losses.
  • A break-down of the most important items in the quarterly profit and loss statements by the SNB
  • Gold (yellow) is valued mark-to-market and has a significant impact on the P&L
  • As the SNB invests in foreign bonds (blue), a price impact occurs when yields change
  • The SNB also seems to have a large position in equities (green); in Q3, major stock market indices declined by 11% (SMI), 14% (S&P) and 25% (Dax). Assuming an average decline of 15%, the SNB must have had CHF 20bn invested in order to lose 3bn (as seen in Q3 2011).
  • The largest impact, however, comes from FX positions (red). Over 5 quarters (Q2/2010-Q2/2011) the SNB lost CHF 42bn or 8% of GDP. This is a huge amount, normally seen only during a severe banking crisis (costs of bailout).
  • Here’s a chart of just FX profits and losses (the red bars from the above chart), together with respective exchange rates of the USD and the EUR per CHF:
  • The profits in Q3 and Q4 2011 must stem from the movement of the USD versus the CHF (as the EUR/CHF rate was didn’t change much – thanks to the peg; see right-hand scale for FX rates)
  • Should the peg break, and exchange rates revert to the lows seen on August 9, 2011, the SNB would lose serious amounts of money on foreign currencies as well as gold (assuming gold price in USD being equal; a strong CHF translates into a weak gold price in CHF).
  • To keep it simple, I assume the Swiss Franc would appreciate across the board against all currencies. The SNB currently holds CHF 245bn worth of foreign exchange plus 49bn in gold, so let’s say 300bn. A 10% revaluation would hence result in losses of CHF 30bn, a 20% revaluation in 60bn.
  • The SNB is in a tricky situation. On June 4, the Euro fell again dangerously close to the peg:

  • “Recycling” of Euros into other currencies risks alienating other central banks. Remember, when the SNB announced the Euro-peg, the ECB’s press release was not very cheerful (“took note of the decision”). The SNB cannot expect any love from other central banks, as no one wants to have a strong currency.
  • Should other central banks “fire back”, the SNB stands no chance (due to the small size of Swiss Francs among international currencies).
  • Should the Euro crisis escalate further, the peg will get attacked.
  • It is worth noting that the USD has appreciated versus the Swiss Franc by 31% since the lows of August 2011 due to the Euro-peg (a weak Euro “dragged” the CHF down versus the Dollar):

From a Dollar-perspective the Swiss Franc and/or Swiss assets (real estate) might look attractive at current exchange rates and attract buyers.


Central banks have tried to “manage” currencies in the past. Sooner or later, market forces win. As all other major central banks keep printing additional Euros, Dollars, Yen etc., the SNB looks prone to lose this game. A run on the Swiss Franc could lead to a further increase in prices of Swiss government bonds. Swiss equities however would decline, at least measured in Swiss Francs.

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Newsboy's picture

I will wait to see what the Swiss have up their sleeves. They are not known for being fools or victims.

Ahmeexnal's picture

CHF is at dirt cheap levels.

Then again, rationality and central banking never mix.


Seize Mars's picture

The Swiss? You mean the people of Switzerland? Because this most certainly has nothing to do with them. Any more than the FED has something to do with "America."

The Swiss aren't fools or victims? Well, the data suggests otherwise.

We're all fools and victims.

...the cold feeling you get when you realize...'ve been had...

Ahmeexnal's picture

Breaking news: Germany will bail out the eurozone. Print to infinity!

WASHINGTON (MarketWatch) — Germany will ultimately take whatever steps necessary to keep the euro zone intact, said Deutsche Bank’s former Chief Executive Officer Josef Ackermann on Monday.

“If it comes to worst, before the euro zone collapses, everything will be done to bail the euro zone out,” Ackermann said in a late afternoon speech at the Atlantic Council. Read more on Deutsche Bank's CEO handover.

Then he gives clear advice:

“There is no immediate concern about the collapse of the euro-system,” Ackermann remarked.

Which, as we all know, means that exactly the opposite will happen: The immediate collapse of the euro-system.

As much as Germany would like to leave the EZ, by doing so it would be clear to all the reality of the EZ was nothing more than Germany robbing the rest of the EZ countries until it suited them.  War would be next, obliterating once and for all the german imperial elite.  Germany has no choice than to sink into hyperinflation along with the rest of the EZ.


Michael's picture

With whose money will the European Banks be recapitalized with?

Ahmeexnal's picture

Ludwig Sixpack's money?

The only way they can keep Ludwig Sixpack form rioting is by handing him stein after stein of beer.

Time to go long Tsing Tao, as Germany is about to become the largest buyer of chinese beer!

Michael's picture

Watch for aristocrats and oligarchs entourages starting to fall apart.

A sign.

LuKOsro's picture

Still waiting for the EUR/CHF short to pay off ? The swap rates must be killing you.

fx's picture

Losses are meaningless to any bank that can freely print its own money. The SNB could lose 100bn CHF and simply print them anew. Cycle repeats all over again - end of story. A usdchf short at this point still seems a decent idea though - commercials seem to agree.

LuKOsro's picture

Not really, because not every country is in the USA`s shoes. Not every country has a reserve currency that everyone needs so that they can settle international trade.

Cabreado's picture

If the central banks' intentions were honest and worthwhile, they would be doing fine.

And then they would voluntarily Jump out of the way, with great pride on the way down.

disabledvet's picture

the Hong Kong dollar has been pegged to the US dollar for decades without any problems. Of course "they don't have a Central Bank" which goes a long way towards explaining why they've done pretty darn good all things considered in "keeping it real" as they say. All they have is a currency board. This is obviously "too stupid" for the Swiss who i imagine "fancy themselves smart and all that." Having said that maintaining a currency board is no walk in the park...but since the goal isn't to see how much money you can make being a Central Banker it doesn't involve "how much money in actuality you lost" either. In other words "we're all on the same sheet of music with a currency board." I have read that 70 percent of Swiss citizens are renters...which is absolutely ABSURD. The deflation once it hits Europe will be so massive it will felt for AGES.

Oh regional Indian's picture

True that DA. But HK also has the world's largest Black/Underground Economy. 

I wonder how much these weird territories (Switzerland is clearly one such) like HK, S'pore and the rest of the shady Likmystain and others really skew the world economy with their Under-currents.

My guess is massively.

And spare a tear for the swiss, NOT! Over-armed, over-protected, especially from the great wars...

It's time they really played on the world stage or got off the ride.


Ahmeexnal's picture

ORI, Fluke-xembourg is one such place, but they are happy to remain unnoticed.

The national slogan is "nothing ever happens in Luxembourg", as in "nothing going on here, move along"

kkam's picture

ori, what a load of rubbish! 'black/underground economy' ? you don't know what you're spouting. have u lived in hong kong? the only underground economy there is the criminal element - drugs and related money. there is very little incentive for anybody to be a 'black' business in hong kong since the tax is low and contract law is well respected.

And were the Swiss over-protected? by whom? BY THEMSELVES. It's time you got off the zh stage, weirdos not welcome here.

Cosimo de Medici's picture

Yes, personal tax rate is 15% and corporate is 14%, or vice versa, right? Very little reason to cheat.

As for the budget, it benefits directly from the peg, since keeping rates low to maintain the peg has produced several bubbles in property and allowed the government to auction land.  And when they run out, somebody fills in some more of the harbor and builds the next waterfront special.  In another twenty years it will be just a creek, no longer a harbor.

Seize Mars's picture

The reason the HKD has been pegged to the USD is because the locals were easy to strongarm. A currency peg is a method to inject inflation, or rather it's a method of vomiting up money supply and having it impact someone else's lap in the back seat.

So if you call that "without having any problems" then bless you. In fact I've got a bridge you may be interested in.

kkam's picture

As one who has lived in HK since the time the HKD was pegged to the USD, I can tell you that the locals welcomed the peg. They were not strongarmed.

Cosimo de Medici's picture

Bingo! Unintended consequences might be considered "having a problem", unless, of course, one's name is Li Ka Shing.

That peg has resulted, among other things, in some of the highest property prices in the world, and is one reason so many HK folks live in 300 sq ft three bedroom apartments that rent for US$3K per month or more, and others live in everything from hell holes to cages.

Skim through the SCMP Property Section and note page after page of cockroach-ridden apartments that are not even cleaned out before the RE Agent shows them, and they often lack stoves, fridges, etc., but go for US$5000 to US$40,000 per month.

"Two bedroom townhouse in Red Hill....easy commute to Central (ha!)....ocean views...won't last long at HK$225,000 per month"

Non Passaran's picture

Yes real estate prices are high but how is Singapore?
I don't think HK is visibly worse off.
And anyone who's ever bought any real estate in HK has seen his nominal net worth appreciate so I don't think the peg has hurt them a lot.

the tower's picture

What's wrong with renting?

barliman's picture


The CHF/euro Peg: Never have so many second guessed so few for no discernible reason

I look at the SNB: FX gain/loss chart and I see the Swiss coming out ahead for the last three quarters. For the six quarters before that they were taking it in the ass.

Since the peg was put in place, many financial wizards have been writing articles saying, "They are doing it all WRONG!"

Well, I guess after people have been used to fucking you over, Switzerland, they are never going to be happy till you let them fuck you again.


Yea, I agree.

Switzerland said to say to the rest of the world,  "FUCK YOU"


Ghordius's picture

I agree with barliman, even though the diplomatic and neutral Swiss would never say it in those terms. The political fight in Switzerland is already ongoing, with the conservatives lobbying for floating and the industries (including tourism and banking) for the floor.

Note that the SNB is a semi-private institution older than the FED (in fact, the FED is a bad copy of the SNB). It belongs mostly to the State's Banks (Cantonal Banks) which belong mostly to the Swiss States (Cantons).

My two cents: the floor will hold as long as needed, no way speculation in the Soros fashion can touch it. It's a question of will, not firepower.

"From a Dollar-perspective the Swiss Franc and/or Swiss assets (real estate) might look attractive at current exchange rates and attract buyers."

I disagree. From a Dollar perspective, everything will look better and better, but Swiss real estate is already at very high prices and often difficult to understand for outsiders (just look at the lowest home-ownership rate of the first world).

Urban Redneck's picture

Swiss assets (real estate) might look attractive at current exchange rates and attract buyers-

Swiss property might look attractive in an f/x vaccuum, but the cost of ownership includes subjecting one's worldwide income to Swiss taxation.  Even without the current intentional housing bubble (which is largely the result of structural excentricities in the local market and less the result of CB ZIRP madness induced speculation) Swiss real estate is generally a very unattractive proposition, unless one is actually a natural born and extremely xenophobic Swiss citizen.  Then there is the fact that taxes and maintenance must be paid in CHF, so if the peg breaks, the carrying cost on that vacation home explodes upwards from an already very high level.  CAVEAT EMPTOR.

For a huge portion of those domiciled in Switzerland, renting property makes more sense than buying it.

Ratscam's picture

instead of buying physical Swiss real estate, you rather buy real estate exposure with some stocks of PSP, Mobimo and SPS. There you have your mobile Swiss real estate exposure including yields of up to 3%.

koperniuk666's picture

Swiss property is not overvalued - It did not bubble;

And is currently undervalued according to Economist;

The build quality should also be factored in - Swiss houses are very well built and built to last.

And prices are rising in Switzerland right now

veyron's picture

The swiss balance sheet looks like a wedge of swiss cheese: full of holes

Ahmeexnal's picture

You should try REAL swiss cheese sometime.

MikeMcGspot's picture

The Swiss are the ultimate preppers.

They are ready to weather a long storm.

Nations of the world should emulate their example of resilience.

Change memes without a lot of embarrassed cover up.

When the $#S Delta don’t make sense quit your bitchen about the SHTF and PTB,

Move on.

Get medieval on the ass of bull shit.

Be accountable and responsible.

Have integrity and fun .

Or not…

From your Canton wherever it may be.


Poor Grogman's picture

Accumulating CHF anticipating the peg to go I don't see too much downside here for the time being.

As far as R/E goes, Ireland has got to be a better deal hasn't it?

MikeMcGspot's picture

Lots depends on how the vote go in Wisconsin tomorrow. Venus is in transit too, the "Watson, market algo will be watching, refactoring to their liking. Me too.


Acorn10012's picture

Hoping for a clear sky tomorrow at sunset.

MikeMcGspot's picture

I love so how the patterns of astronomy are recalibrated with such precision to leverage history. And the sight of venus dancing across the sun. The story of our people.

Freebird's picture

Wanna know, how friggin bad EC has to get before the SNB say ok enough of pegging. Swiss exporters have had a ride for some months at at these levels. Stronger chf equates to internal deflation. Rock & hard place. Where is the line? Answers on a postcard please to "golden bullet" (tm) @ Freebird Central Bank punta com

Yen Cross's picture

 The " problem" SNB has , is everyone was { LONG} chf last year! ( intervention)  The SNB has to buy euros this time around!

   I suspect the Swiss are short (eur/xau).

blindman's picture

speaking of david and goliath...
the american citizen is the new indian pt1
john trudell and alex jones
" it is all about energy, think more believe less."j.t.
aka graffiti man.

." it is a disease that travels through the minds
and through the generations."

" if jesus were alive today he would throw up

and never stop." anon?
The Jews Behind US Spy Drones
what won't the state do for pork and
greater influence and power? and which state?
the swiss and italians, and many others,
are falling way behind in the great drone
race of the 21st century. just imagine
the skies the world over full of armed
drones doing surveillance and strikes and
being controlled remotely, perhaps by artificial
intelligence and algorithms of unknown or
unrevealable origin, national security, and also
being hacked by unknown and unknowable sources.
you see, it is security and preparedness that
will settle the minds and lives of the many.
let us get on with it then. you must be brave
in this new world order thingamajig and whatchama-
call it century.
the amount of stupid in the world appears to be
infinite while actual intelligence is rare
perhaps as hen's teeth, it could happen?

Freebird's picture

Yes & no. The Swiss have bought Euros to save their exporter & to fend off deflation. So if we were to approach parity usd euro on a disorderly Med default, the SNB has to act rather than get flushed down the same toilet bowl. Capital controls? Nah bs.
My question, what & when? We know where she's going...

Queried from a long Yen hand from 124 & long chf until intervee from 1.17 to the us banana

Yen Cross's picture

  That was a good post Freebird

  Parity is the last " Issue" that comes to mind. You live in a SAFE HAVEN.   Study the " Barter System". /sarc 


Eireann go Brach's picture

Joe Biden...what part of Africa is Switzeland in?.. Obama.. Jesus Joe, Switzerland is in the Mediteranean!

Freebird's picture

& yes, on a long enough timeline short all fiat against the uncivilised yet tradtional barbaric relic ...mmm bitchez no

Yen Cross's picture

  I was thinking of a new " Hedge fund name"   Pro lapse .com

skepticCarl's picture

Yea, the Swiss really have it tough, with almost the lowest unemployment rate and nearly highest standard of living of any country on the planet.  And, a postcard beautiful landscape, with reasonable control of its borders.

Yen Cross's picture

You for-got Cuckoo Clocks, and Chocolate.

Ahmeexnal's picture

what about "free" heroin? yep, they got that too.

Don Diego's picture

Swiss border control? it is not what used to be. They are being invaded like the rest of the West, the Swiss must get on with the program, orders from "above".

Perpetual Burn's picture

This is new? welcome to fiat money...

slewie the pi-rat's picture

i'm not sure who the author or his management company is about, but he don't know shit, imo

this is correct: During a turbulent Q3 2011 the SNB enacted a peg with the Euro (1.20) after the Euro briefly reached 1.0067 on August 9.

this is backwards: Overall, the SNB unsuccessfully tried to stem the rise of the CHF versus the Euro since the beginning of 2010, leading to large losse  {the SNB isa trying to save the EU currency, for pete's sake!}  [they are bankrolling the EU!]

yes, the FED sold them some beaucoup cheap USDs then, too

the SNB devalued the CHF by 10% on sept 6, 2011, as i recall, did they not, when they announced the recent support level?   i don't know what this guy is up to, but disinfo about what the cBanksters are doing is pretty high up on the list of possibilities. imo

now, it wouldn't be the first time i didn't understand a POV different from mine on the first try, and i apologiZe to the writer if i have my head wedged (again) but this seems incredibly labored and almost as if the man was not around a year ago and is tring to figure out wtf happened from the akashic records, or something

i can name a half-dozen respected writers off the top of my head who see the SNB peg of last year as the beginning of a new phase of heightened centralBankster co-operation ushered in by the sweeping powers given to the benzelbub under frank/dodd/

frankly, the idea that the SNB is gonna be the odd man out and hung out to dry is totally fuking absurd to me

this is like somebody reading the COTS report and trying to deduce wtf blythe's book is~~are you shitting me?  with the unhedged figures only, how could anyone know what this bank is doing, other than working with other central banksters to keep the debt structure functioning given the amount of pure toxicity created by the various RE and mortgage bubbles and ww.frauds.con, and the "checks are in the mail" problems which the EU faces as it now operated, plus guaranteeing bank deposits which no longer exist except in "johnCorzine'sPoche" and M-F global-type "enronesque book-keeping" [as with most fractional reserve bank deposits, if withdrawn as a run]

westerman's picture

They should just let their currency ride to the top. 1/0 (or nearly zero) is nearly infinity. The poorest man in Switzerland will be able to buy lots of stuff in Euro countries. It would make them very rich.

Dr. Crime's picture

While I do not agree with Slewie's comments that the article is poorly researched, I do agree with his premise that the Swiss must cooperate with their neighbors be they centralbankers or politicians. The Swiss need the monies from neighboring countries much that same as any other country that is limited in natural resources. The Swiss media is obsessed with tourism and the real money makers are obsessed with banking. And the Swiss still do make a living providing a safe haven for monies. So they shall continue to make a profit holding others monies, note the negative interest rates on their short-term bonds, while they have to maintain good relationships with future depositors. Trust is a delicate thing to build and so if you are depositing your millions of Euros from your Greek, Spanish or Italian account (or your 10's of hundreds from your Portuguese account), then you have to trust your neighbor. The Swiss are not giving away spiderman  beach towels for new accounts, but they are playing the game of good neighborhood bank.

And the Swiss rent because it is a small country in terms of land and they have strict zoning controls. They recognize the loss of agricultural land to suburbs and are trying, but failing as of late, to curb the spread of suburbia. Housing in Switerland is hugely expensive, but then the Swiss are quite well off, some of the latest numbers show the average, the average mind you, wealth of a swiss household at $603,000. So if they wanted to buy a house, I believe that could do so if they wished hard enough.