SNB’s cap of the CHF – profit motive?


While just last week we reported on the widely-followed story of the resignation of Swiss National Bank Chairman Philipp Hildebrand (after news leaked that his wife had profited from a currency trade due to the SNB’s capping of the CHF versus the Euro), a new twist to the story has emerged. The SNB just reported a handsome profit of CHF 13 billion (about $13.8 billion) for 2011, due mainly to the devaluation of the CHF in the second half of the year – which was caused by the SNB itself!

It seems that the SNB-induced devaluation of the CHF resulted in a large rise in the value of the SNB’s foreign currency holdings. The SNB had been accumulating large amounts of foreign currency (mainly Euros and U.S. dollars) over the previous two years, selling CHF, in a failed attempt to halt the rapid rise in the value of the CHF.

While the SNB is supposed to play a role similar to that of the Federal Reserve in the U.S., its ownership structure makes things a little more complicated. The SNB is owned 55% by the various cantons which make up Switzerland, and 45% by private investors. And the SNB had been under pressure leading up to the devaluation, as its foreign currency purchases (and CHF sales) had resulted to that point in massive losses for the SNB – for example in 2010 the SNB reported a net loss of CHF 19.2 billion. The CHF 13 billion profit in 2011 certainly helps take away some of the sting from that loss, and also allows the SNB to make distributions to its shareholders.

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SNB's cap of the CHF – profit motive?

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