Risk of next downside in 2024?: These are the consequences of SNB’s billion-dollar loss

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Swiss National Bank (SNB) closed the second year in a row with a loss of billions of dollars. The loss in 2023 will be 3 billion francs. A significant improvement, at least, compared to the previous year, when there was a historic loss of 132.5 billion francs.

The last minus does not remain without consequences. So what happens next? Can SNB Chairman Thomas Jordan (60) deliver profits again in 2024? Blick answers the most important questions.

There is one main reason for this: the SNB loses 8.5 billion francs on its franc positions. The Central Bank pays billions of dollars in interest to commercial banks on their term deposits parked at the SNB. In this way, money is withdrawn from the market. Otherwise, it will not be able to apply the key interest rate. Unlike the previous year, the strong franc did not have a negative impact: the SNB again made a profit of around 4 billion from its foreign exchange positions, unlike in 2022.

You will not receive any distribution. In good years, the SNB pays up to six billion francs, one-third to the federal government and two-thirds to the cantons. These billions are now lost again. However, this situation has become clear in the last few months. For a distribution sufficient for 2023 in the fourth quarter, a profit of well over 50 billion was required instead of a loss of nearly 5 billion. Many cantons were already expecting this. The lack of distribution still has consequences for the population in Bern. This means the planned tax cut for residents has been postponed until 2025.

The underdistributions come at an inopportune time for many cantons. This is how the financial situation of the cantons has changed, according to Zurich Finance Director Ernst Stocker (68, Senior Vice President). “But the specific starting points are different,” says Stocker. There are cantons that have recently had to implement budget consolidation measures; for example, Jurassic. Others, such as Glarus, Solothurn and Uri, also planned such measures.

Ultimately, however, a failure in distribution will affect all cantons. “If the SNB fails to distribute profits in the medium term, the canton of Bern will face the risk of taking on new debt. Accordingly, without dividend distribution, fiscal policy pressure remains high,” says Bern finance director Astrid Bärtschi (50, medium).

Raiffeisen investment director Matthias Geissbühler (48) does not expect the SNB to make billions in profits again this year. «I expect a balanced or slightly positive result. “We see a difficult environment for stocks and bonds in our forecasts,” he said. Distribution reserves are very much in the red and need to be replenished first.

An unexpected outcome for the cantons and the federal government would therefore require the SNB to make a high profit. However, the stock market environment and the strong franc remain challenging for the Central Bank. The cantons of Bern and Lucerne have already calculated that their 2024 budgets will not include SNB funds. The canton of Zurich expected a profit distribution of 119.3 million francs in the 2024 budget. Bern or Lucerne decided not to do this.

Bern and Zurich are again planning distributions in their budgets for the years 2025-2027. “The SNB’s balance sheet loss increased further from 2022 to 2023. Bern Finance Director Astrid Bärtschi said, “The possibility of no dividend distribution has increased, especially for 2025.” The government council will need to re-evaluate the planned revenue when developing the 2025 budget and the financial plan for the period 2026-2028. The canton of Lucerne decided to plan the budget without SNB money until 2027. This means that the canton is not dependent on the SNB for its budget.

The cantons and the federal government are having to tighten their belts due to lack of distribution. This situation affects Switzerland even more during periods when growth forecasts for the economy are low. Because the cantons and the federal government can rely on countercyclical projects at such times. This means further revival of the economy with public investments in weak periods. Employers will benefit from lucrative contracts. After all, low economic growth also has consequences for the population. Because employers are more stingy with wages.

Source :Blick