Forex Gains Boost SNB's Coffers

The Swiss National Bank said Friday it expects a profit of about 13 billion Swiss francs ($13.8 billion) for 2011, suggesting its capping of the Swiss franc against the euro in September boosted the value of its foreign-currency holdings.

The Swiss central bank swung into profit in the January-December period, after posting a book loss of about 11 billion francs in the first half of last year, as the value of its currency and gold holdings increased.

"Given the rise in the gold price, the SNB recorded a valuation gain on its gold holdings of 5 billion francs, and its foreign-currency positions will contribute 8 billion francs to the result," it said Friday.

The spot gold price rose 47% from the start of 2011 though to September, when it hit a record high, but then pared those gains to end the year up 10%.

The Swiss central bank also said it will distribute 1 billion francs of its expected profit to the country's 26 federal cantons, after warning last year that it may have to cancel such payments given the volatile state of the currency markets.

"It's no surprise the SNB expects a profit, as the introduction of the 1.20-francs-per-euro cap helped boost the value of its foreign currency reserves," said Alessandro Bee, an analyst at Bank Sarasin & Cie. "This and the fact it will distribute some of its profits to the federal cantons will help relieve some of the political pressure it has been under."

The SNB, whose head Philipp Hildebrand resigned Monday in the wake of a controversy over currency dealings, suffered a book loss of 19 billion francs in 2010 as the franc's sharp appreciation eroded the value of its euro and dollar holdings, accrued during its interventions between March 2009 and mid-2010.

The central bank's book losses drew sharp criticism from the populist Swiss People's Party, whose billionaire vice-chairman Cristoph Blocher called for Mr. Hildebrand's resignation.

The Swiss central bank said its currency reserve provisions will absorb 3.2 billion francs of last year's profit, and its distribution reserve will be topped up by 5 billion francs.

The final earnings result, to be released March 8, may also be boosted by the SNB's Stability Fund, which holds former illiquid assets from UBS AG, the SNB said, without providing further details.

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