Tuesday, May 27, 2014

Swiss National Bank First Quarter Results: 1.7% annualized Yield on Seigniorage, 2% annualized Loss on FX Rate Change

From SNBCHF.com:
The main task of a central bank occupied with QEE (quantitative easing or exchange intervention) is to obtain higher gains on seigniorage than it loses with its “ever appreciating” currency. Otherwise its equity capital would be absorbed.

In the first quarter of 2014, the Swiss National Bank (SNB) was unable to accomplish this task: The seigniorage effect yielded 1.7% annualized thanks to interest and dividend income but the FX rate losses were 2% annualized.

SNB Results Q1/2014 
The Swiss National Bank (SNB) reports a profit of CHF 4.4 billion for the first quarter of 2014. The profit on the foreign currency positions amounted to CHF 1.7 billion. A valuation gain of CHF 2.6 billion was recorded on gold holdings. (source SNB
Winning Positions are the ones that lost in 2013
P/L for gold: 2.6 bln. CHF after a loss of -15.2 bln. in 2013
Valuations of government bond holdings: 2.3 bln. CHF

Losing Positions are: 
According to the release “Exchange rate-related losses amounted to CHF 2.7 billion in all”, this is an 0.5% on the 495 bln. balance sheet or a 2% annualized loss. We look at the change in FX rates in detail:
USD, 27% of the portfolio, at 0.8844 in Q1 after 0.8873 at the end of 2013
JPY, 8%, at 116.70 in Q1 after 118.23 at the end of 2013 –> a loss of around 0.5 bln.
EUR, 47%, at 1.2182 after 1.2252 in Q4/2013. –> This is the biggest losing position in Q1 with a 1.4 bln loss
GBP, 7%, at 1.4739 after 1.4773 in Q4/2013
CAD, 4%, at 0.8001 after 0.8336 in Q4/2013 –> another loss of 0.8 bln. 
The sentence from the official release
“Exchange rate gains on the Japanese yen did not offset the losses recorded on other investment currencies, particularly on the euro, the US dollar and the Canadian dollar.” is rubbish. Yes, in 2013 the yen lost the most, but not in Q1/2014.

2.1 bln. compared to a 495 bln. balance sheet gives a 0.42% yield in this quarter, or a 1.7% yearly yield. This implies that the SNB will be able to afford a EUR/CHF of 1.10, a depreciation of 10%, in roughly six years....MORE