The year 2015 was rough for the Zurich-based Schweizerische Nationalbank (SWX: SNBN), or Swiss National Bank (SNB). Not long after lowering its interest rates into negative territory, the bank removed the Swiss franc’s minimum exchange rate against the euro, prompting an initial collapse of the euro by as much as 30% against the franc. This may sound positive, but because many of SNB’s currency holdings are in euros, the euro's weakness against the franc resulted in huge paper losses when translated back to francs.
SNB’s Transparency Reveals Some Surprises
Certainly not afraid to do things differently than other central banks, SNB admits to directly expanding its ownership of foreign equities, specifically stocks. Unlike other central banks, SNB is quite open with its holdings and performance, conveniently providing thorough, and often revealing, quarterly reports.
According to its 2015 second quarter report, SNB held as much as 18% of the bank’s assets, equal to around 15% of Switzerland's gross domestic product (GDP), in equities. Specifically, the bank held $37 billion worth of shares in over $2,500 U.S.-listed companies. During its unprecedented buying spree of U.S. stocks, Swiss National Bank became one of the largest shareholders of Apple stock. SNB bought some 3.4 million shares in the iPhone maker during the first three months, and as the stock tumbled, doubled down and added another 909,000 shares, bringing its total to 10.4 million.
In addition to Apple, SNB holds very large positions in businesses such as Exxon Mobil, Microsoft, Johnson & Johnson, General Electric, Procter & Gamble, Verizon, Facebook, Coca-Cola and Valeant Pharmaceuticals, to name a few.
Swiss National Bank Reports Record Losses in 2015
Following the bank’s shocking decision to remove the exchange rate ceiling, SNB reported massive losses of $32 billion in the first quarter of 2015 alone, the biggest loss in the bank’s history. The second quarter saw more of the same, as SNB reported an additional loss of $20 billion, meaning Swiss National Bank lost the equivalent of 7% of its GDP in the first half of 2015. The second half of the year was much kinder to SNB, but at year’s end, the bank announced a loss of $23 billion, about 4% of its assets, in its annual report.
Untimely Investments Costs SNB
Not only did SNB invest heavily in Apple just before its stock fell, the bank was also hammered by its substantial holdings in the beleaguered Valeant Pharmaceuticals. In another poorly timed move, SNB increased its stake in Valeant just before the controversial company was accused of price gouging and Enron-like fraud. At the end of September 2015, SNB owned 1.44 million shares of Valeant, up from 1.28 million at the end of June. At the time, the bank said its stock was worth about $257 million. As the stock more than halved, SNB lost more than $146 million on its Valeant holdings alone. Conveniently, SNB claims to only invest passively, using a complex set of rules based on strategic benchmarks to choose stocks for its massive portfolio.
SNB Vows Continued Intervention in 2016
Data shows that Swiss consumer prices fell 1.3% in 2015, and Switzerland’s unemployment has risen to its highest level in six years. The nation’s stocks are suffering, and SNB has promised to remain aggressive in 2016. Given its track record of doubling down even against common wisdom, SNB does not rule out pushing interest rates deeper into negative territory in hopes of devaluing the franc. While SNB has not produced the desired results, it is not for lack of effort and creativity.
