The Swiss National Bank Made $55 Billion In Profits Last Year, More Than Apple, JPM And Berkshire

With a total return of over 22%, the S&P 500 shrugged off international and domestic strife, disappearing trading volumes and three Federal Reserve interest-rate hikes to put in its best annual performance since 2013. And while the rising tide lifted all boats - even long-short equity funds returned 10%, if still underperforming the S&P - the Swiss National Bank, essentially one of the world's biggest government-backed hedge funds (second only to the ECB) with a taste for megacap US tech stocks, had one of its best years in recent memory.

SNB

And, as the SNB reported overnight, the SNB’s purchases of foreign stocks and bonds netted it a hefty profit in 2017, if only on paper. As has been duly reported here for years, to prevent the Swiss franc from strengthening dramatically, the SNB prints francs (out of thin air) and injects them into the international market. The foreign currency it receives in exchange for its francs are used to buy - you guessed it - bonds but mostly stocks.

SNBFIVE

But while it has long been known that the SNB, along with the BOJ, directly purchase equities and ETFs in the open market, what was stunning in the SNB's statement is that it expects to report an annual return of 54 billion francs ($55 billion) - a sum equivalent to 8% of Switzerland’s GDP.  As the WSJ observes, this amount is greater than the annual profit at Apple, J.P. Morgan, Berkshire, Wells or Microsoft.

SNBFOUR

By comparison, the Fed has earned an annual profit of about $100 billion in recent years, although the SNB's return is equivalent to a much larger slice of its GDP, as a result of the different types of asset holdings: the Fed is long Treasurys and MBS while the SNB has been buying pretty much everything, including tens of billions in US stocks.

In its latest release, the SNB also reported that it has accumulated about 760BN francs in foreign bonds and stocks through years of foreign-exchange interventions, particularly during Europe’s debt crisis, in which it created francs and used them to purchase foreign assets in a bid to weaken the currency.

As the WSJ puts it, with just the right amount of snark, "Switzerland got a lot wealthier in 2017, thanks to its central bank’s emergence as a major money manager with a near $800 billion portfolio of foreign stocks and bonds." More:

The Swiss National Bank said Tuesday it expects to report a record annual profit of 54 billion Swiss francs ($55 billion) for last year—a staggering sum equal to 8% of the country’s entire gross domestic product...  The profit is gargantuan. It is more than Apple earns in a year, and more than JPMorgan Chase & Co. and Berkshire Hathaway Inc. combined. Those are all giant, world-spanning corporations. The SNB employs about 800 people. Its chairman—among the best-paid central bankers—earns about $1 million a year.

The SNB is one of the few central banks with listed shares. Its share price more than doubled last year, and was up nearly 3% midday Tuesday.

Of course, this isn't a real "profit" as the Swiss can’t spend this massive windfall. Obviously, booking the profits would require the SNB to sell some of its foreign bonds and stocks that included nearly $3 billion in Apple stock and $1.5 billion in Facebook at the end of the third quarter.

So what does the SNB do? Well, while central banks like the Federal Reserve transfer most of their profits to their governments, the SNB is in the early stages of a five-year profit-sharing arrangement whereby the maximum amount it can transfer to the Swiss federal and regional governments is just two billion francs a year.

That agreement runs until 2020.  In other words, the SNB is hoping that the market does not crash in the next 2 years or else all those accrued profits will become instant losses.

* * *

So what stocks did the SNB buy in recent months? Unfortunately, the SNB’s 13-F for Q4 won’t arrive for another month, but during Q3, the central bank went on yet another buying spree, boosting its total holdings of US stocks to an all time high of $87.8 billion, up 4.2%, or $3.5 billion, from $84.3 billion at the end of the second quarter.

Unlike the Fed, ECB and BOJ, the SNB’s balance sheet is overwhelmingly comprised of foreign assets, exposing it to significant foreign exchange risk. Avoiding paper losses due to FX risk is just another incentive for the central bank to keep printing francs and accumulating more foreign assets. The weaker the franc, the higher the central bank’s return, which means any time your P&L goes against you... why you just print some more fiat and buy stocks with it.

The SNB’s profit was lifted by a trio of positive forces: low bond yields preserved the value of its foreign bonds that account for 80% of its foreign reserves; higher stock prices raised the value of its equity holdings and the weaker Swiss currency made those foreign assets worth more in franc terms.

The euro strengthened nearly 10% against the franc last year. Euro-denominated assets are the largest currency holding of the SNB, followed by the dollar.

The SNB said 49 billion francs of its profits came from its foreign assets. Its gold holdings increased in value by about three billion francs last year, and its Swiss franc positions by two billion francs.

The SNB hasn’t reported a loss since 2015, when it abandoned its ceiling for the franc-euro exchange rate, causing the franc to massively and rapidly appreciate. It ended the year with a 23 billion franc loss.

Meanwhile, as we showed last quarter, this is a breakdown of the SNB's US stock holdings, which have more than doubled in the past 2 years.

SNB

While one might assume that these gains will somehow benefit the Swiss people, the SNB is currently in a profit sharing arrangement with the Swiss government that caps the government’s share of profits at 2 billion francs. The agreement runs until 2020.

SNBTWO

Under the agreement, private shareholders will receive a small return - CHF1.5 million annually. These shareholders have little say over how the bank is run, but it’s important to understand that private investors can buy shares in the SNB as they would any other Swiss stock. Though the central bank is mostly owned by Swiss states, known as cantons, and cantonal banks.

SNB shares were up 2% in midday trading on Tuesday, just shy of record highs reached last year.

SNBStock

According to WSJ, the SNB said it would allocate about five billion francs to its provisions that guard against future fluctuations in exchange rates. The rest of its paper profits will go to a distribution reserve to ensure that the SNB can still make future payouts even in the event of a loss.

And nowhere are the SNB's profits tied more closely than to the fate of Apple stock, which remains the SNB's top investment.

Apple

As we showed a few months ago, the central bank increased its Apple stake to 19.2 million shares, making it a larger holder of AAPL stock than Schwab and Franklin Resources and just behind Janus with 20 million shares. One can’t help but wonder if the SNB continued buying Apple during the fourth quarter, helping lift the broader Nasdaq pushing it above 7,000.

As central banks talk about reeling in their monetary stimulus - the Fed expects to raise interest rates three more times this year while tapering its balance sheet, while the ECB has already started to decrease the size of its purchases - the SNB remains a notable outlier. Because when you’re racking up profits like the SNB is, what incentive is there to change one’s behavior.

Finally, if you’re printing the money that you’re playing with, where is the risk, and why even pretend that the world still has "efficient and rational" capital markets?

Comments

Radical Marijuana YUNOSELL Tue, 01/09/2018 - 15:05 Permalink

Nobody has a monopoly on the methods of organized crime. There are only some who are better at doing that from time to time in place to place. The Swiss National Bank is particularly well-placed to be able to make more of the public "money" supplies out of nothing, and then use that to buy equities, which then generate some gains (within fundamentally fraudulent financial accounting systems.)

After perceiving and defining human beings as relatively separated from their environment and each other, then human beings necessarily live as reproducing gangs of robbers. Since it is not possible to discuss human beings without some language which is based upon the perceptions and definitions of relative subtractions, it follows afterwards that everything that happens are relatively robberies.

However, due to the development of Globalized Neolithic Civilization, within which Switzerland is one of the foremost beneficiaries, since that country became one of the international bankers' bases of operations (e.g., BIS is located in Berne,) the National Bank of Switzerland is well-placed to be able to achieve symbolic robberies through the established sociopolitical systems which enforce frauds through the globalized financial accounting systems (based on entrenched bookkeeping tricks.)

Since the best organized gangsters are governments dominated by banksters, their bullshit dominates the world, including the minds of the vast majority of people, who are unable and unwilling to recognize that they too live as robbers, only relatively disorganized ones, who have adapted to living inside the biggest bullies' systems, which became the banksters' systems.

It may well be correct to say that the Federal Reserve Board, whose "money" made out of nothing as debts was backed by the petrodollar system, was the single most significant institution. However, the Fed never had a total monopoly on symbolic robberies achieved through enforcing frauds.

The deeper political problems are due to the degree that the biggest and best organized forms of organized crime are able to publicly present themselves as somehow not being so, due to having gone through processes which legalized lies, and legalized violence which backed up their lies.

Furthermore, those deeper political problems, of the almost total dominance of bullshit built into the structure of the dominate natural languages and philosophy of science, has enabled the vicious feedback spirals of the funding of the political processes, which resulted in enforcing frauds to use about exponentially advancing technologies, to become about exponentially more fraudulent.

http://www.zerohedge.com/news/2017-12-26/vicious-cycle-approaches-well-regress-and-through-mean

The Vicious Cycle Approaches: "We'll Regress To (And Through) The Mean"

During that audio recording, David Collum particularly mentioned how the Swiss National Bank was making "money" out of nothing to use to buy assets. Of course, given such a background, that Bank is going to appear to make significant "profits."

P.S.

Too bad, so sad, that the up-date of the Zero Hedge Web site appears to have wiped out the comments I posted under that article, and those have not yet been restored, otherwise I would link to my discussion of those points made by Collum regarding the Swiss National Bank making "money" out of nothing to buy assets. He points out that few other institutions, and no individuals, can legally counterfeit the public "money" supplies and then use that "money" to buy assets ...

Collum states that if  he could, then he would too. However, if everyone could make "money" out of nothing, then the entire system of symbolic robberies based on governments enforcing frauds by big banks would be destroyed. Instead, the continuation of the established systems based on the methods of organized crime require the vast majority of people to not understand that, and also, have been conditioned for generation after generation to feel like they do not want to understand that ...

I believe that relatively few people would understand the conclusion of this article, which correctly stated the overall situation as being:

Finally, if you’re printing the money that you’re playing with, where is the risk, and why even pretend that the world still has "efficient and rational" capital markets?

In reply to by YUNOSELL

HRClinton VWAndy Tue, 01/09/2018 - 14:50 Permalink

Skimming and Moneychanging, baby!

They are happy to HODL AU for Global Clients, held in SD boxes.

AU obtained from conversion of BTC into AU, where no baby fiats were harmed or used.

p.s. US Plantation travel docs are not welcome. Nobody wants the expense and the headache. Better show up with alternate travel docs, US Debt Slaves! A US passport is not that good for global travel: you get dissed, stigmatized or targeted. You can thank DC for that.

In reply to by VWAndy

YUNOSELL mtl4 Tue, 01/09/2018 - 13:07 Permalink

to me it signals that the Swiss Central Bank has concluded these equity investments are pretty safe since they've concluded that the Federal Reserve cannot allow stock market to crash now due to current economic conditions, whereas before a crash was always a good thing to redistribute wealth up to the banksters

In reply to by mtl4

ProsperD9 Juggernaut x2 Tue, 01/09/2018 - 13:14 Permalink

Why? Germany is head of the shïthole EU....Switzerland voted not to join and un-pegged the Swiss Franc from the Euro. Germany can't do a dam thing. Besides, the Swiss are too shrewd and protective of the country to let Germany get hold of it. The EU would have LOVED to have Switzerland (the jewel of Europe) in their claws but it wasn't meant to be.   

In reply to by Juggernaut x2

ProsperD9 HillaryOdor Tue, 01/09/2018 - 13:44 Permalink

What planet are you messaging from? The Swiss are paid some of the highest salaries in the world and it has NOTHING to do with the Euro..LOL The Swiss Franc was un-pegged from the Euro because the Swiss saw how volatile the Euro is and it's a sinking ship. Why should they have an anchor around their neck with a sinking ship? The countries around Switzerland in the Euro like the P.I.G.S. (Portugal, Italy, Greece, and Spain) are all dam near broke. France is in no better position and Germany is lost. The Swiss dodged a bullet by not joining the EU and can pretty much do as they please. Get a clue...!!!!!!

In reply to by HillaryOdor

ProsperD9 HillaryOdor Tue, 01/09/2018 - 14:30 Permalink

Investors and traders around the world are place trust in Swiss economic, fiscal, and financial policies. Basic economic factors, such as government debts in most large economies and the uncertainties surrounding the Euro make it highly probable that the Swiss Franc will further strengthen over the long term. Swiss companies have been great at succeeding even with a strengthening Swiss Franc. In fact, in the last 30 years, the US Dollar lost some 75% of its value versus the Swiss Franc. And the US market is still the second largest export market for Swiss goods with 10% of Swiss exports (behind Germany with 20%, but ahead of France, Italy or the UK!) and it also is by far the largest destination of Swiss investments. Switzerland as one of the most competitive and innovative economy of the world (voted Nr. 1 several years in a row) – in spite of the strong Swiss Franc. In addition, the Swiss economy has become more resilient to exchange rate fluctuations. As one of the most (if not the most) stable economies in the world, I think Switzerland is doing quite well without your advice...LOL You wouldn't be able to survive in Switzerland as your IQ Intelligence level has to be a certain percentage to even make a living...anyway. I have no more time for your nonsensical posts....LOL GOOD BYE   

In reply to by HillaryOdor

HillaryOdor ProsperD9 Tue, 01/09/2018 - 14:32 Permalink

Yawn.   I'm not reading your crap.  You probably just googled for some quick economic factoids so you could pretend you know what you're talking about, but it's obvious you don't because your IQ is too low.  

LOL.  Pathetic.

Goodbye. 

I get the last word.  I win and I laughed at you too because you are beneath me with your room temperature IQ.  Being an extremely mature internet genius is so easy.

In reply to by ProsperD9

moonmac Tue, 01/09/2018 - 13:22 Permalink

It’s a lot harder to make a profit manufacturing something in the states to sell on the world market instead of just manipulating money using the Fed's totally rigged markets.

Wish we could all get in that business. :o(

 

mily Tue, 01/09/2018 - 13:28 Permalink

The ultimate scam: print money so you can buy unlimited number of shares essentially cornering the market/moving in any chosen direction and then unloading to retail bagholders...

I am impressed

(golfclap)

HRClinton ffed Tue, 01/09/2018 - 15:09 Permalink

No, Templar Masters founded Switzerland.

Until the financial and military wizards of Templars came along, the Swiss were just a collection of farmers and hillbillies.

They taught them about the holy trinity of Guns, Gold and God.

In reply to by ffed

WarPony Tue, 01/09/2018 - 15:07 Permalink

"central banks like the Feral Reserve transfer most of their profits to their governments"

In fact, the Fed keeps 6% of every Penny of profit the Fed realizes and unloads this "profit" as a dividend off onto private (and (((secret))) - by law) "(((shareholders)))."  Yep, we're getting screwed bigly.

TheMexican Tue, 01/09/2018 - 15:08 Permalink

What you have is now a competition between central banks to see who can perform the best.

Front running is ok

Trading on insider info is ok

Printing money is ok

Killing people to win is ok

Starting wars is ok

Everything is ok, there are no rules that apply to them.

This is the ultimate game of Running Man.

 

Sad but true...

Let it Go Tue, 01/09/2018 - 17:57 Permalink

This is just another indication of just how messed up and flawed the global markets have become. Central banks across the world have no business buying stocks, however, this has become a part of their response to correcting the forces of past excesses.

One thing is clear, the central bank's large foray into stock ownership represents more than just a moral hazard and in many ways, it paves the path for a liquidity crisis in our future. More on this subject in the article below.

 http://Central Banks Massive Iincursion Into Stocks.html