The Swiss National Bank made $55 Billion in profits last year, more than Apple, JPM


With a total return of over 22%, the S&P 500 shrugged off international and domestic strife, disappearing trading volumes and three Federal Reserve interest-rate hikes to put in its best annual performance since 2013.

And while the rising tide lifted all boats – even long-short equity funds returned 10%, if still underperforming the S&P – the Swiss National Bank, essentially one of the world’s biggest government-backed hedge funds (second only to the ECB) with a taste for megacap US tech stocks, had one of its best years in recent memory.

And, as the SNB reported overnight, the SNB’s purchases of foreign stocks and bonds netted it a hefty profit in 2017, if only on paper. As has been duly reported here for years, to prevent the Swiss franc from strengthening dramatically, the SNB prints francs (out of thin air) and injects them into the international market. The foreign currency it receives in exchange for its francs are used to buy – you guessed it – bonds but mostly stocks.

But while it has long been known that the SNB, along with the BOJ, directly purchase equities and ETFs in the open market, what was stunning in the SNB’s statement is that it expects to report an annual return of 54 billion francs ($55 billion) – a sum equivalent to 8% of Switzerland’s GDP. As the WSJ observes, this amount is greater than the annual profit at Apple, J.P. Morgan, Berkshire, Wells or Microsoft.

In its latest release, the SNB also reported that it has accumulated about 760BN francs in foreign bonds and stocks through years of foreign-exchange interventions, particularly during Europe’s debt crisis, in which it created francs and used them to purchase foreign assets in a bid to weaken the currency.

As the WSJ puts it, with just the right amount of snark, “Switzerland got a lot wealthier in 2017, thanks to its central bank’s emergence as a major money manager with a near $800 billion portfolio of foreign stocks and bonds.” More:

The Swiss National Bank said Tuesday it expects to report a record annual profit of 54 billion Swiss francs ($55 billion) for last year—a staggering sum equal to 8% of the country’s entire gross domestic product… The profit is gargantuan. It is more than Apple earns in a year, and more than JPMorgan Chase & Co. and Berkshire Hathaway Inc. combined. Those are all giant, world-spanning corporations. The SNB employs about 800 people. Its chairman—among the best-paid central bankers—earns about $1 million a year.

The SNB is one of the few central banks with listed shares. Its share price more than doubled last year, and was up nearly 3% midday Tuesday.

Of course, this isn’t a real “profit” as the Swiss can’t spend this massive windfall. Obviously, booking the profits would require the SNB to sell some of its foreign bonds and stocks that included nearly $3 billion in Apple stock and $1.5 billion in Facebook at the end of the third quarter.

So what does the SNB do? Well, while central banks like the Federal Reserve transfer most of their profits to their governments, the SNB is in the early stages of a five-year profit-sharing arrangement whereby the maximum amount it can transfer to the Swiss federal and regional governments is just two billion francs a year.

That agreement runs until 2020. In other words, the SNB is hoping that the market does not crash in the next 2 years or else all those accrued profits will become instant losses.