Economy

Swiss franc shock hits central bank for $50B

The Swiss National Bank (SNB) revealed on Friday that abandoning its currency cap on the euro in January cost the central bank 50.1 billion Swiss francs ($52 billion) in the first half of the year.

In its interim earnings release, the central bank detailed the full extent of its balance sheet pain, as unlike most of its major counterparts, the SNB is privately run and has shareholders to report to like a regular company.

"(The) appreciation of the Swiss franc led to exchange rate-related losses on all investment currencies," the SNB said in a news release on Friday.

The central bank said that 3.2 billion Swiss francs had also been lost on its holdings of gold.

SNB shares are listed on the stock exchange, with approximately 55 percent held by public shareholders (including regional member states of Switzerland, called cantons).

Ipek Ozkardeskaya, a market analyst at London Capital Group, said that SNB dividends might also be squeezed by the central bank's heavy losses over the last six months. This could prove problematic she said, given the economic slowdown in Switzerland.

For 2015, the SNB's dividend is 15 Swiss francs per share, before tax.

"At these times of economic slowdown, Swiss cantons need cash for public spending in order to sustain the economic activity. Unexpected costs on cantons' budget is all but needed nowadays," Ozkardeskaya said in a research note on Friday morning.

Switzerland's gross domestic product fell by 0.2 percent in the first quarter of 2015, but there are signs the economy is fighting back.


Getty Images

A barometer by the KOF Swiss Economic Institute, which tracks the Swiss economy, showed a 10 point surge for July. The report, released Thursday, noted that "the first shockwave" after the abandonment of the currency peg was clearly "losing its power."

Marc Ostwald, a strategist at ADM Investor Services, concurred.

"The evidence thus far is that it has weathered the impact of the move relatively well," he told CNBC via email on Friday.

The Swiss franc originally soared around 30 percent against the euro, after the SNB scrapped its four-year peg against the euro on January 15 and investors piled into the currency.

However, the Swissie has been on a roughly even keel since March and has pared its gains by roughly one-half.

In an effort to decrease the currency's appeal as a "safe haven" investment, the central bank has also introduced negative interest rates, which have proved contentious, according to Ozkardeskaya.

"The social costs of negative interest rates has become an important issue on the political platform, as Swiss households saw their savings flat while the pension funds had somewhat difficulties to generate return," she said in a note.