Shares of the Swiss National Bank Soar 64% in Two Months

What the heck is going on? 

The central bank of Switzerland has become a huge hedge fund since it decided in January 2015 to print Swiss francs — for which there is huge global demand — and sell these freshly created francs to buy bonds and stocks that are denominated in euros and dollars. US stocks are a particular favorite. The Swiss National Bank (SNB) has thereby created a fantastical money-fabrication scheme. This scheme is publicly traded. And the shares have become a doozie.

Today, the shares (SNBN) closed at a new high of 3,126 Swiss francs, having soared 64% since July 19 in cryptocurrency-fashion. This chart shows the daily moves since May:

In January 2015, the SNB “shocked” the financial markets globally by scrapping its minimum exchange rate of CHF 1.20 to the euro and switched to a draconian negative-interest-rate policy and massive asset purchases — massive for a tiny country like Switzerland — to keep the value of the franc from rising against the euro.

This chart of weekly moves shows how the SNB’s shares spiked 28% during those heady days in January 2015, how things calmed down afterwards, relatively speaking, and how all heck broke loose in July 2016, with the shares soaring 200% in a little over a year, including 90% since April:

“The SNB share resembles long-term bonds rather than shares (as the dividend is limited to 6% of the share capital by law),” says the Swiss National Bank. But by the looks of things, they resemble the latest cryptocurrency.

As of the end of the second quarter, the SNB had 2,558 US stocks on its balance sheet, according to its 13F filing in August with the SEC, valued at the time at $84.3 billion, including 90 new positions since the first quarter, 1,433 increased positions, 253 decreased positions, and 36 position it sold entirely.

In total, at the time, the SNB had acquired 714.3 billion francs ($748 billion) in foreign exchange assets, including $84.3 billion in US-traded stocks, with large positions of the biggest most liquid stocks. Its top 10 positions totaled $14.7 billion, with the share count as reported for Q2 at today’s share prices:

So who’re the lucky ones that own the shares of the SNB?

  • 55.9% are owned by the Cantons.
  • 18.4% are owned by public Cantonal bank.
  • 0.5% is owned by other public institutions.
  • Only 25.3% are owned by private shareholders.

With only about 25% of the shares being publicly traded, there’s little liquidity. So if a hedge fund decided to drive up the price — given that the public owners that hold 75% will not sell — a relatively modest amount of buying pressure can trigger a noticeable move, and then other speculators get the drift and begin chasing after the same shares, and prices suddenly soar.

Here is the irony. The SNB creates its own money, and can do so in unlimited quantity. It then buys foreign stocks and bonds with those freshly created CHF, because it can. It can because there is heavy demand for CHF in the foreign exchange markets. Foreign investors take whatever the SNB prints. And this is the irony: the SNB is watering down its tiny currency more than any other central bank, and yet, foreign investors are falling all over each other to buy it.

So it’s operating a wondrous hedge fund, powered solely by the desire of foreign investors to own the ever more watered-down CHF. If these hedge-fund bets go south during a market downturn, the SNB can create more money to cover the hole. No big deal. It won’t go bust.

This works as long as there is global demand for CHF. If that demand dries up, and if these foreign investors realize that they’re holding heavily watered-down CHF and start unloading them, then the SNB might find that selling more newly created CHF into CHF weakness leads to a plunge in the currency’s value – because, why would anyone still want to own these watered-down CHF once they start plunging?

This would lead to a slew of other problems and issues with financial stability that the SNB might then have to address by unceremoniously dumping those stocks it has amassed. And as we have seen in January 2015, it’s not shy about shocking the financial markets.

Optimism among small investors in the US about stocks just hit the record set in January 2000, weeks before the crash commenced. Read…  Finally the Contrarian Warning from Small Investors

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  30 comments for “Shares of the Swiss National Bank Soar 64% in Two Months

  1. Joan of Arc says:

    I wish I could print my own currency and buy up all the stock I want. Why, I would by tons of Apple, Amazon, and any other stocks that strike my fancy.

    • walter map says:

      Why bother with risky investments when you can simply stash your press runs in off-shore accounts? Just to make it look good?

    • Mike says:

      One little problem, Joan, the stocks are being bought at what are historically the highest prices for those stocks, or close to the highest. It is true that the Fed banksters cannot raise the interest rates too much as to treasuries, which compete indirectly with stocks for investors, because declines in their holdings of treasuries would bankrupt them. Moreover, increases in the rates of return that it has to pay (due to increased treasury rates) would bankrupt the U.S. government, which has debt service payments that are huge fraction of its revenue.

      See (This is why Trump’s tax cutting proposals to give what are essentially gigantic gifts his crony b/millionaire buddies are crazy.)

      Of course, since the U.S. government needs to issue MORE debt to cover its deficits each year, increases in the rates at which new debt sells would mean that it would get less per treasury sold, of the treasury’s face value. Nevertheless, a shock such as a massive sale by this same Swiss central bank of its shares or the sale of some other major holder of its shares could drive the stock market into a panic.

      Already, some countries are trading in other currencies, e.g., Russia and China. Thus, if that panic or some other event causes more investors to flee from the U.S. dollar, and/or something makes it lose its global reserve currency status, many investors will not want to hold those U.S. dollar denominated stocks, which pay dividends, etc., in U.S. dollars. That will drive U.S. stock prices down and cause loses to the Swiss Bank investors.

      Consequently, I think that if the inevitable major correction in stock prices downward happens, the investors in this Swiss scheme will lose their shirts. That will scare them away from doing business with this Swiss central bank again. That would depress the value of the Swiss Franc for a long time. Thus, they are gambling with the precious credibility of their country’s currency. What will happen to the prices that they pay for imports if their franc gets dumped.

  2. Justme says:

    Readers may find it interesting that there are at least 5 central banks around the world that have at least partial ownership that is publicly traded.

    Swiss National Bank
    National Bank of Belgium
    Reserve Bank of South Africa
    Bank of Japan
    Bank of Greece

  3. Lee says:

    Yes, the Bank of Japan 日本銀行 is listed on the Tokyo Stock Exchange with number 8301 being assigned to it.

    And unlike the SNB, the share price has been a downward path since 2008.,m130,s&a=v

  4. IdahoPotato says:

    The SNB, however, refused to increase its dividends to shareholders, frozen at 15 francs for a century.

    • Wolf Richter says:

      Yes, as I pointed out in the article, by law it’s set at 6% of the nominal share value (set at 250 CHF), which has amounted to a dividend of 15 CHF no matter what the actual shares do. That’s why the SNB says that those shares are closer to bonds than anything else. I wonder what they’re thinking about the run-up in share price.

  5. dave says:

    Try playing monopoly and one person plays with the bankers money. Game would get old quick. Something a child would like to play. I guess anything to make a buck.

  6. Steve M says:

    Swiss cheese is full of holes too. And the vermin love it as well.

    Thank you for your work. Mr. Richter. It opens up all of history for reevaluation.

    Based on this article, I now realize the only reason the Weimar Republic of Germany failed was because it was way ahead of its time!

  7. ru82 says:

    Notice which stocks they are buying. Productive, income generating companies.

    They do not need to sell any of these stocks. Most are generating good dividends.

    Great plan print money out of thin air and buy stocks and bonds of companies that generate real earnings and pay good dividends.

    The SNB now has a steady income flow and can use some of this to provide services to it citizens.

    Brilliant. Just buy up other tech companies in other countries and thus you do not have to worry about creating new tech companies and jobs in your own country.

    Always wondered why the FED just did not take the $4 Trillion of QE and buy the entire Nikkie 225 before the Japan Central Bank decided too. :) Think about it. Maybe Japan was ahead of the game and realized buying up the Nikkie before other Foreign Central banks did. They are probably doing for national security reasons to keep these companies locally owned.

  8. raxadian says:

    So, more or less what THE U.S.A does with dollars? Is even a fourth of the dollars circulating around the world came back to the states it would crash the US economy.

  9. d says:

    The Eur floor was directly costing too much, reducing profitability.

    This is a different tactic with the same end as the floor, hopeful at a lower price, if not a profit.

    Notice they are not buying Much Eur or Europe in this exercise, which is a big indicator of their lack of confidence in both the Eu and Eur…

  10. Ricardo says:

    If people as private individuals were to print money it would be classed as counterfeit currency and you would serve time in the slammer plus/or a large fine.
    A central bank prints money and everything is legal.

    This is b-llsh-t

  11. Stevedcfc72 says:

    You’ve got to admire the Swiss, its a shame the UK hadn’t got the brains to do something like this.

    It might come back to bite them but hey at least they’re thinking out of the box.

    • Wolf Richter says:

      You have to have a currency everyone in the world wants to buy as an investment to be able to pull this off. Once global interest in that currency wanes, it’s game over.

      • dave says:

        or if the markets hit a wall. but then they have the plunge protection teams that will kick in. either way i guess they win. another central bank will pick up the torch. oh wait they all have their torches burning bright. boj huge etf owner. low rates. ecb running out of bonds to buy. maybe they will start buying junk bonds.

        • IdahoPotato says:

          If the ECB buys a corporate bond that is demoted to junk status, they keep holding it. I may be wrong, but that’s my understanding of the situation.

      • d says:

        Which is why I am confident they wont over extend themselves.

        Hundreds of years of Global confidence and trust, is priceless.

  12. james wordsworth says:

    It is even better. The Swiss have really pulled one over on the world.

    With +700 billion of FX reserves, that equals $100,000 for every man woman and child in the country (only 8 million people).

    Then there is the negative interest charged on swiss franc holdings. The SNB picked up $1 billion in negative interest from banks with excess holdings at the SNB for the first 6 months of the year. (basically $500 per person per year).

    The idiocity of people wanting to hold swiss francs at any price drove the SNB to try to weaken the currency or the Swiss economy would have been even more ruined. At some point they (SF holders) will pay for their stupidity. The SNB by “taking advantage of them”, has probably done the best it can do.

    The big question is when stocks do eventually drop where will the money go for safety? US$, gold, SF, EUR?

    • TJ Martin says:

      CH is the safe place to be . Always has been . And with 70% of the worlds wealth in its borders it always will be .

    • d says:

      “Then there is the negative interest charged on swiss franc holdings.”

      If you are going top Hold CHF it is better to HOLD it, always has been.

      The reasons CHF is not the global reserve is the there is not enough of it and the Swiss will not allow it (just like the Japanese).

      The Swiss will not risk hundreds of years fo global trust for short term gain (Apart from UBS which is a Rouge Swiss Bank).

      The chinese are printing and buy buying as well.

      Difference is, in Switzerland you can see how much they have printed, and what is in circulation.

      CCP is a black hole.

      When People find out how much Physical CNY/RMB there is out there they will see what used toilet paper looks like

  13. TJ Martin says:

    What is going on is simple . When things are looking wonky worldwide CH is the safe place to be financially … and everyone with a sense of history knows it . So why the surprise ?

  14. Pretiorates says:

    I guess all Swiss would be very happy if the Swiss National Bank would sell all these US Investments and all other.

    Unfortunately that is not real life as everybody else in the whole world likes to buy CHF during any hick up. It’s also because they have a reliable political system and therefore lots of the global wealth is in our country. Everybody buys CHF – and it will be even more extreme during the next hick up (of the Wallstreet or Kim Jong Un or whoever…).

    Additionally do not forget: The Swiss economy is a net exporter. Not only cheese with holes as Steve M mentioned above. There are Swiss chocolates, Watches and lots of other stuff exported most people never heard of. All these Swiss companies sell their stuff abroad and get Dollars and Euros. And what are they doing with these currencies? Selling it and buying even more CHF!!! No wonder the FX Reserves of the Swiss National Bank continue to increase.

    Yes, the SNB once has to sell all these assets – incl. the US stocks. And I hope it will be because everybody wants to sell their CHF. And the CHF might will be 10% or more lower when the National Bank can finally sell their assets and buy all the CHF back they once printed without limits… The funny thing: All Investors selling CHF in panic would have to realize they are selling to a national bank…

    And a final note to the dividend of the SNB stock. Yes, the dividend is limited by law and it won’t change during the next decade. Additionally the SNB pays out almost every year part of their profit to the different cantons (provinces).

    That the price of the stock is rising has to do with the Germans. There is one big German stock holder (6.72% of the capital) and every Swiss wonders since years why he bought this stake. And a couple of weeks ago (mid July) a German Stockmarket Newsletter recommended the SNB stock to buy. Yes, his readers did well so far. But the arguments of the recommendation are truly false.

    Therefore: All Swiss pray that the SNB-Story has an happy end. And now they have some more Germans Shareholders who do not yet – but should pray too. And Mr. Richter, I always love reading your articles. But lets now pray together that it does not bring new shareholders to the stock of the Swiss National Bank. This would make less sense than buying any cryptocurrency…

  15. Ambrose Bierce says:

    When the ROW realizes that Swiss financial probity is in fact a giant ponzi scheme, the SNB will quickly switch their allegiance to the EU and apply for massive bailouts [from Germany.] One wonders if this isn’t being done by the cabal of Central Bankers to help out Janet Yellen who does not have the auspice of unaccountability, or autonomy of power to purchase any asset [so the Swiss are doing it for her] – what Belgium is in the aftermarket in US Treasury bonds, tiny Switzerland is to the aftermarket in stocks – since Janet can’t, let’s help her out, she did after all direct US banks to take on DBs dangerous derivative overload two years ago.
    Should Yellen be able to purchase US stocks, and since the Fed never ever sells assets off its balance sheet, it sometimes lets bonds die, but stocks never die. These stock assets are closely held, driving up the price while removing shares from the market. They can really get the squirrel cage going, DOW 40K, if they can do this or their Swiss friends can do it for them. In the interest of inflation, do you suppose the stock market can go up 100% while inflation is a nominal 2%. If you think that is possible, I have some land in Florida.

  16. mean chicken says:

    This is why I have a long term position in CS, certainly there’s some parallel benefit for CS

    Obviously; someone’s buying those SNB Francs hand over fist for some reason, who are they exactly and why? That’s the real question..

    • d says:

      “Obviously; someone’s buying those SNB Francs hand over fist for some reason, who are they exactly and why? That’s the real question..”

      Start with people holding Eur and CNY/RMB toilet paper, and work from there.

      Then add the fear factor buyers, also buying gold at the moment.

      Excellent gold refineries in Switzerland, they sell in CHF and USD .

  17. kaj says:

    Beautiful……….Thanks for this info;;;;;;;;;; what a doozy! I believe that the Norwegians are trying to do the same things.

    • d says:

      People with real money, are voting for the global reserve currency of the future.

      These moves say it will not be CNY/RMB.

      As these moves support more of the same, US $.

      The US $ will be replaced as the global reserve, unless the US resolves various issues.

      However not by CNY/RMB.

      And today these moves reinforce the simple question. With what, do we replace the US $.

Comments are closed.