Swiss National Bank Announces A Deficit Of 132.5 Billion Swiss Francs For The Fiscal Year.

The Swiss National Bank  posted an annual loss of 132.5 billion Swiss francs ($141.54 billion), according to the preliminary numbers it issued in January. The SNB’s holdings’ decline in value as a result of 2017 bond and stock market losses resulted in the greatest loss in the central bank’s 115-year history.  A strengthening of the Swiss currency also had a negative effect, lowering the SNB’s assets and profits from overseas investments when they were converted back into Swiss francs.

The SNB will only do this twice more since its foundation in 1907 because of the loss, which followed a profit of 26 billion francs in 2021: neither pay a dividend to investors nor the Swiss federal or regional governments. The majority of the 131.5 billion franc loss experienced the previous year was accounted for by the bond holdings, which saw a value loss of 72 billion francs, and the stock portfolio, which had a value loss of 41 billion francs.

Once adjustments were applied, the stated loss reduced the SNB’s 102.5 billion franc distribution reserve, leaving the organization with a 39.5 billion franc shortfall. Regarding potential future effects of the loss on its monetary policy, the SNB chose not to comment. On March 23, the SNB is expected to release its next monetary policy report. Despite the large losses, experts did not think that the SNB’s 66 billion franc equity would have any impact on the situation.

According to UBS economist Alessandro Bee, the SNB can operate without equity, so even if it were entirely dissolved, monetary policy would not change in the short run. “A prolonged period of negative equity would be necessary before I would anticipate a change in monetary policy. We are still a long way from this situation, notwithstanding the considerable loss from the previous year.”

The Swiss National Bank does not rule out more interest rate rises.

According to Chairman Thomas Jordan on Tuesday, the Swiss National Bank cannot completely rule out the need to increase interest rates once again in order to contain inflation. Jordan stated in his final public statement before the SNB announces its next interest rate decision on March 23 that “we cannot rule out” the need to further tighten monetary policy. In order to accomplish its aim of price stability, the central bank was also prepared to act in currency markets by buying and selling foreign currencies, Jordan said at a Zurich event.

The Swiss annual inflation rate rose to 3.4% in February, above the SNB’s target range of 0-2%, and the markets now anticipate more aggressive action from the SNB later this month. The market now predicts a 52% chance that the central bank will raise its policy rate from its current level of 1% by 75 basis points and a 48% chance by 50 basis points.

Even while Swiss inflation was low by global standards, according to Jordan, it was nevertheless above its target. He claimed that while it was simpler for businesses to pass on these gains by raising their pricing, wage increases were also bigger than in past years.

It increases vulnerability across the board and complicates monetary policy, Jordan added. “We need to pay special attention to the issue.” On Monday, Credit Suisse revised its prediction for the SNB’s policy rate, stating that it now anticipated a 75 basis point increase rather than its earlier expectation of a 50 basis point increase. The remainder of 2023 will see rates remain unchanged, according to UBS, which anticipates a 50 basis point hike in March. UBS economist Alessandro Bee stated, “But, risks are definitely to the upside and we’re now monitoring the situation.

Rich Chinese clients are concerned about potential sanctions, according to Swiss banks

Officials at Switzerland’s largest banks claim that since Russia invaded Ukraine, wealthy Chinese clients have been considerably more concerned about parking money in the nation due to its strict attitude to enforcing sanctions. One board director who is in charge of his bank’s Asian business remarked, “We were not only astonished, but outraged that Switzerland abandoned its neutral stance. I can prove statistically that hundreds of clients who were about to establish accounts are no longer doing so.

Despite the fact that Chinese companies have been flocking to list their shares in Switzerland, senior bankers from six of the country’s ten major banks spoke about their experiences dealing with individual customers. All of them related a similar story. Several expressed concern about the impact on a valuable industry and essential source of future growth. One banker stated, “The subject of penalties has come up with clients.”Late last year, it was undoubtedly an issue of worry for clients. They wanted to know if their money was secure with us.

Anke Reingen, an analyst at RBC, underlined the issues facing the Swiss banking industry, which contributes 10% to the nation’s GDP. For Swiss banks, “Asia has been a big contributor to profits,” she noted. Because a significant portion of their revenues have traditionally come from the area and because wealth management has historically had significant earnings growth, their share values are extremely closely tied to Asian indices.

Several Swiss banks claimed they were already “war-gaming” how to deal with the consequences if ties with China deteriorated materially as well as how to safeguard and reassure their most important Chinese clients. All Swiss wealth managers must consider the impact of their nation’s response to sanctions, according to Andreas Venditti, a Vontobel analyst who focuses on banks. “It’s the subject high on the agenda at board and executive level,” he added. They are all attempting to get ready for the next events.

The Swiss government has followed the EU’s lead in enacting sanctions against Russia and rich Russians associated with Vladimir Putin since Moscow invaded Ukraine last year. Sanctions on China have become more likely in recent weeks as a result of various events, including the disagreement over the spy balloon and Beijing’s potential transfer of arms to Moscow. Officials in his office were “keeping a tight eye” on Chinese money in Switzerland, according to a US ambassador headquartered in Bern.

One of the bank executives said he thought Switzerland had acted hastily in its opposition to Russian clients. We must set a boundary for what [Switzerland] will and won’t participate in at some point. The government argues that the nation’s neutrality is still inviolable, but said that while deciding whether to impose sanctions on Russia, it was necessary to evaluate the “credibility of Swiss neutrality” against the severity of Moscow’s “violation of the fundamental rules of international law”

Ignazio Cassis, the foreign minister, has nevertheless sparked a national discussion about what neutrality is and has openly argued for a more “cooperative” strategy with allies. With a quarter of the worldwide total, the world’s leading offshore wealth hub is still Switzerland. Just a small portion of the SFr46.1bn in Russian assets held in Switzerland by roughly 7,500 wealthy Russians, or about SFr7.5bn ($8bn), is now frozen by Swiss sanctions, according to the Swiss State Secretariat for Economic Affairs.

Asia, however, has grown significantly in importance as a source of income during the past ten years. The amount of Chinese assets in Switzerland has not been made public by the government, but according to a cache of documents provided to the International Consortium of Investigative Journalists in 2014, Swiss banks had opened accounts for many members of China’s ruling elite and their offspring, including the son of former premier Wen Jiabao.

Swiss bankers believe the bulk of their Chinese clientele do not meet this criteria. According to one’s observations, the majority were prosperous, small-scale business owners with fortunes between SFr10mn and SFr50mn. He said that excluding those persons from Switzerland’s banks would be a serious setback for the sector. Another senior member of the wealth management sector, though, sounded more upbeat. “I’ve spoken with Chinese clients who were hesitant after Swiss adopted sanctions last year, but they haven’t yet decided to stay away.

edited and proofread by nikita sharma