Bloomberg News

SNB’s Loss Quadruples, Stoking Criticism of Chief Hildebrand

July 29, 2011

(Updates with stabilization-fund profit in 15th paragraph.)

July 29 (Bloomberg) -- The Swiss central bank saw its first-half loss nearly quadruple from a year earlier on the declining value of its international reserves, reviving criticism of its president, Philipp Hildebrand.

The Zurich-based Swiss National Bank posted a loss of 10.8 billion Swiss francs ($13.5 billion) compared with a 2.78 billion-franc shortfall in the first half of 2010, it said in an e-mailed statement today. Exchange-rate-related losses amounted to 11.7 billion francs and the bank lost 1.55 billion francs on its gold holdings.

The central bank came under criticism as it amassed foreign currencies in the 15 months ending June 2010 in a bid to stem the Swiss franc’s gains and counter the risk of deflation. That left the bank’s balance sheet vulnerable to currency swings. The franc’s advance against the euro contributed to a 21 billion- franc loss in 2010.

“Today’s figures are the result of the SNB’s breakneck intervention policy,” Martin Baltisser, secretary general of the Swiss People’s Party, the largest in the lower house of parliament, said by telephone. “The central bank shouldn’t have intervened, because it couldn’t prevent the franc from appreciating anyway. Philipp Hildebrand and the government that elected him have to decide whether he is the right person to be the president.”

Gains Versus Euro

Hildebrand became chairman of the SNB’s governing board on Jan. 1, 2010.

In the second quarter, the SNB posted a loss of 12.7 billion francs. The loss on foreign-currency positions, which includes valuation losses, amounted to 11.4 billion francs and the loss on gold holdings was 1.56 billion francs.

The Swiss currency advanced 1.3 percent to 1.1331 per euro as of 6:59 p.m. in Zurich, after reaching an all-time high of 1.1298 today. The franc was little changed against the dollar at 78.78 centimes after it reached a record 78.54 today.

The bank’s accumulation of foreign-currency reserves sparked a debate in Switzerland, with politicians and economists lined up on both sides of the issue.

Susanne Leutenegger Oberholzer, a Social Democrat lawmaker, said the central bank should have “intervened more decisively” to weaken the franc and deter speculators.

‘Huge Losses’

“In that case they might have stopped the franc’s appreciation early and they wouldn’t have posted these huge losses,” Leutenegger Oberholzer, a member of the Committee for Economic Affairs and Taxation in the National Council, the lower house of parliament, said by telephone. “In addition, exporters wouldn’t have to cope with the franc’s strength now.”

The government last month lowered its forecast for 2012 economic growth to 1.5 percent from 1.9 percent, saying the franc represents “a burden on Swiss exports.” The projection for 2012 export growth was cut to 3 percent from 4.7 percent.

SNB Vice President Thomas Jordan said on July 13 that he was “very concerned” about recent currency developments. Asked whether the central bank would be willing to intervene again, he said that “if there was a situation with a deflation threat, then we’d have the possibility to act.”

“It’s the job of a central bank to ensure price stability,” said David Marmet, an economist at Zuercher Kantonalbank in Zurich. “In order to achieve that, they can even accept losses on a temporary basis. In addition, the euro- area fiscal crisis has wrong-footed policy makers.”

The SNB is a joint-stock company in which public shareholders including Swiss cantons and cantonal banks have a controlling stake. Individuals hold the remainder. The national government has no shares.

The stabilization fund, which was set up to support UBS AG, the country’s largest bank, had a profit of $1.33 billion in the first half, the SNB said.

The central bank’s loan to the fund declined to $9.4 billion from $12.6 billion at the end of December, according to the statement. The SNB’s potential loss from the stabilization fund, which includes the loan itself and possible losses mainly from derivatives, fell to “about” 10 billion francs from “almost” 14 billion francs at the end of December, the central bank said in its statement.

The fund, set up in 2008 during the financial crisis to enable UBS to offload toxic assets, is being managed by the central bank. It’s financed through the SNB’s loan and an equity injection by UBS.

--Editor: Paul Verschuur

To contact the reporter on this story: Klaus Wille in Zurich at

To contact the editor responsible for this story: Craig Stirling at

The Good Business Issue
blog comments powered by Disqus