SNB expects $ 10b loss for 2013 as gold price plummets
INITIATIVE DEMANDS THAT AT LEAST 20% OF CENTRAL BANK ASSETS BE IN GOLD
Switzerland’s central bank will scrap its annual payment to the government for 2013 after a gold- price decline caused a loss of 9 billion francs ($ 10 billion.) The 30 per cent drop in the gold price in Swiss franc terms resulted in a 15 billion- franc valuation loss for the SNB, offsetting a gain of about 3 billion francs on its foreign- currency positions and a profit of more than 3 billion francs from the sale of its fund of UBS AG assets, the Zurich- based institution said in a statement yesterday.
Last year, the price of gold suffered its biggest plunge since 1981 as the global economy improved. The value of the SNB’s 1,040 tons of gold stood at 37.844 billion francs at the end of November, according to data on its website. It held a further 446.4 billion francs in foreign currency.
The SNB cannot make a profit distribution, it said. This affects both dividend payments to shareholders and the profit distribution to the confederation and the cantons.
Switzerland’s 26 cantons are the central bank’s biggest shareholders. Together with the government, they receive an annual payment of 1 billion francs if the distribution reserve is not negative after appropriation of profit.
The SNB’s gold holdings are the target of a popular initiative that demands that at least 20 per cent of the central bank’s assets be in the form of gold. The measure would also block the sale of such holdings and require all SNB gold to be located in Switzerland. Currently, about 20 per cent of the SNB’s gold is held at the Bank of England and another 10 per cent at the Bank of Canada, with the remainder stored domestically.
SNB President Thomas Jordan said in April that the initiative could limit the central bank’s ability to conduct monetary pol- icy, breaking from a policy of not commenting on politics.
The SNB’s balance sheet has expanded significantly since it set a ceiling of 1.20 per euro on the franc in September 2011, and its foreign- currency holdings — primarily euros and dollars — now equal about three quarters of annual output. Therefore, the SNB would have to buy a large amount of gold to meet the 20 per cent requirement, were the initiative to be accepted, according to Jordan.
While the Swiss Peoples Party has submitted the requisite 100,000 valid signatures for a referendum, a date for the national vote has yet to be set.
The SNB is listed on the Zurich stock exchange. About 55 per cent of shares are held by public institutions, including cantonal governments and cantonal banks. The remaining portion is largely owned by private investors. The federal governments doesn’t hold any shares.