Exactly three months ago [13], the Swiss National Bank issued a report which everyone was eagerly anticipating: its interim results for the quarter ended March 31 in which it laid out just how much it had loss after it took on an "artificially strong" Swiss Franc market back in September 2011... and admitted defeat when on January 15 in a shocking statement, it announced it would remove the EURCHF 1.20 peg despite reiterating just days earlier the peg was rock solid. The result: a record loss of CHF 29.3 billion ($32 billion).
Earlier today, the SNB which is perhaps the most transparent hedge fund of all central banks and actually lays out its financial statements in a respectable manner every quarter, released its results for the second quarter (and first half) of 2015. The result: another absolutely epic loss, amounting to €50.1 billion ($51.8 billion) of which €47.2 billion on currency positions - a whopping 7% of Swiss GDP - meaning that in Q2 the SNB lost another €20 billion even though the CHF crosses barely registered any of the mammoth moves experienced in the first quarter, suggesting that the SNB was hit by the double whammy of its own currency devaluation in Q1, followed by the launch of ECB's QE which crushed the EUR in Q2, and which happens to be the currency in which the bulk of SNB FX holdings are denominated.
Amusingly, the FX loss was despite a CHF530 gain resulting from negative deposit rates charged on sight deposit account balances since January 22, 2015 when Switzerland went full-NIRP.
This is how tthe SNB described its loss:
The Swiss National Bank (SNB) is reporting a loss of CHF 50.1 billion for the first half of 2015.
The loss on foreign currency positions amounted to CHF 47.2 billion. A valuation loss of CHF 3.2 billion was recorded on gold holdings.
The SNB’s financial result depends largely on developments in the gold, foreign exchange and capital markets. Strong fluctuations are therefore to be expected, and only provisional conclusions are possible as regards the annual result.
Loss on foreign currency positions
The negative result on foreign currency positions amounted to CHF 47.2 billion in total.
On 15 January 2015, the SNB decided to discontinue the minimum exchange rate of CHF 1.20 per euro with immediate effect. The subsequent appreciation of the Swiss franc led to exchange rate-related losses on all investment currencies. For the first half of 2015, these amounted to a total of CHF 52.2 billion.
Interest income provided a positive contribution, at CHF 3.5 billion, as did dividend income, at CHF 1.2 billion. Movements in bond prices differed from those in share prices. A loss of CHF 3.9 billion was recorded on interest-bearing paper and instruments. By contrast, equity securities and instruments benefited from the favourable stock market environment and contributed CHF 4.1 billion to the net result.
As the WSJ notes [14], the SNB, like most other central banks, is mandated to secure price stability and isn’t obliged to make a book profit. After all, it can just print its way out of any undercapitalized position even though the SNB, which is publicly traded and which issues 13-Fs every quarter, has private shareholders. And as CA's Valentin Marinov reminds us, "SNB profit goes to its shareholders – the Swiss Cantons – the impact of the loss is comparable to a sizeable fiscal austerity."
Expect tortured screams from the 26 Swiss cantons once the realize that none of the billions in proceeds they are used to obtaining from the SNB will be forthcoming this year as a result of the massive loss which will not be made whole unless both the CHF crashes and the EUR soars, offsetting all the year to date losses. The WSJ adds:
The central bank’s loss could jeopardize the customary payments it makes to Switzerland’s federal and regional governments. The payments are politically sensitive in Switzerland, where many of the country’s smaller cantons rely on them to help balance their budgets.
The SNB came in for criticism when it canceled the payments in 2013 for the first time in its history after posting an annual loss on falling gold prices.
Stopping the payments might add to pressure on the SNB, which has been criticized for imposing negative interest rates on deposits it holds as part of effort to blunt the strength of the franc. Critics say the minus 0.75% rate—an effective charge—penalizes savers, especially because it has been levied on government-run vocational pension funds and other private funds.
An SNB spokesman said it was too early to make assumptions about the central bank’s full-year result, but that if returns don’t improve then the payments and dividends could be suspended again.
It would be ironic if what many consider to be Europe's soundest and best positioned economy, undergoes a bout of "austerity" that puts to shame the spending cuts that Greece is looking at.
We are confident the Swiss can handle it, and if not - maybe they should just petition the SNB to stop charging them 75 bps for funding Swiss banks with their deposits.
And yet, like last quarter, what once again caught our attention was not the SNB Income Statement but its Balance Sheet. Here, we find that while the total assets of the SNB have risen to CHF577 billion as of March 31 from CHF 561 billion at the start of the year, of which the bulk was due to "foreign currency investments", which amounted to CHF530 billion.
[15]
That's impressive, but that's not the punchline.
What is, just like back in April, was the following table [16], according to which 17%, or CHF91 ($94 billion) of the foreign currency investments and CHF bond investments assets held on the SNB's balance sheet are foreign stocks...
[17]
... Such as AAPL, of which as we revealed back in May [18], the SNB owns a whopping $1.1 billion in stock.
[19]
... and numerous other US stocks:
[20]
In other words, the SNB holds 15% of Switzerland's GDP in equities!
We'll give the SNB credit: while every other central bank is loaded to its gills in stocks, few dare admit it. At least the SNB files a quarterly 13-F [21].
So here hoping that other money printing hedge funds central banks follow suit: hedge funds such as the NY Fed, which having participated directly and indirectly (via Citadel) in the market for the past decade if not longer, are holding hundreds of billions, if not more, in equity exposure either on its balance sheet or in off-balance sheet vehicles (via Citadel).
After all, both the Fed, the SNB and all their peers are desperate to "reflate" the world in the only way they can - through stock market levitation. So if anything, admitting to the world not only that they buy stocks outright, but show which stocks they buy, would result in massive future lagged frontrunning of such central bank 13-F purchases, and everyone jumping into the stock market. After all, piggybacking on a central bank is as close to a riskless trade as exists, at least until they all lose control.
We can hope, but it is that kind of "transparency" that the NY Fed will never agree to because, gasp, someone may just admit that while central banks like the SNB, the BOJ and, of course, the Chinese in the past month, have been openly buying stocks, the "value" of the S&P500 is nothing more than a function of how many times the NY Fed's trading desk at 33 Liberty Street pushes the "buy" button on any given day.
