Zurich, Switzerland (GenevaLunch) – The Swiss National Bank announced Wednesday that it ended 2008 with a loss of CHF4.7 billion, in sharp contrast to 2007, where it made a profit of CHF8 billion.

The loss was due in large part to significant currency fluctuations but also to shifts in the gold market. The SNB went to some lengths in its announcement to show that CHF39 billion used to purchase UBS’s illiquid assets did not affect the SNB’s balance sheet.

The loss will not have an impact on the annual CHF2.5 billion that the SNB is legally required to distribute to the federal government and cantons, their share of profits. The national bank is obliged each year to set aside a minimum of CHF1 billion for the profits fund, which is topped up during profitable years. At the end of 2007 the reserve distribution fund was CHF22.9b and at the end of 2008 it stood at CHF14.6b.

Currency fluctuations had the greatest impact on the negative result, with a CHF4.4b loss from currency investments. The bank points out that UK sterling, for example, lost 30% against the Swiss franc in 2008.

The UBS bailout, called the stabilization fund (Stab Fund), involved asset transfers in late 2008, but also in early 2009 that will be considered part of the 2008 transfers. The SNB explains that “After taking into  account the equity contribution to be provided by UBS for the purpose of loss protection for these assets, a loss of US$890 million remained. This loss could not fully be offset by the stabilization fund’s remaining equity capital. Overall, the stabilization fund showed a loss of US$1.69 billion for the year ended 31 December 2008. This loss exceeds the stabilization fund’s equity contribution from UBS by roughly US$50 million.

“The SNB is, however, protected against this loss by a secondary loss protection (an option for 100 million UBS shares). Consequently, the stabilisation fund’s financial situation has no impact on the SNB’s annual result for 2008.”

For the first time ever, the SNB will be issuing a consolidated financial statement for its 17 April annual general meeting, “Owing to the establishment of the special purpose vehicle” the UBS stabilization fund.

The bank’s gold reserves at the end of 2008 stood at 1,040 tons.

You can leave a response, or trackback from your own site.