By Neil MacLucas
ZURICH--Switzerland's central bank posted a loss in the first
half of the year after its decision to scrap a long-standing cap on
the strength of the Swiss franc caused the currency to soar,
eroding the value of its euro reserves.
The Swiss National Bank on Friday reported a loss of 50.1
billion Swiss francs ($51.8 billion) in the six months through June
30, compared with a year-earlier profit of 16 billion francs. The
loss in the second quarter amounted to 20 billion francs, following
a first-quarter loss of 30 billion francs, which was the SNB's
largest since the second quarter of 2013.
The deficit was almost entirely caused by declines in the value
of its huge foreign-currency positions, which are dominated by the
euro, and which amounted to 47.2 billion francs. The bank also
recorded a 3.2 billion franc loss on its gold holdings, which are
denominated in dollars.
The SNB, like most other central banks, is mandated to secure
price stability and isn't obliged to make a book profit. But the
bank's profits are redistributed to its owners, which include
Switzerland's federal government and the country's 26 cantons,
which are akin to U.S. states. The bank, which is publicly traded,
also has private shareholders.
The Swiss franc rocketed in value against the euro and other
currencies in January after the SNB stunned markets by removing the
cap on the franc, which had prevent the currency from climbing too
high.
The central bank's loss could jeopardize the customary payments
it makes to Switzerland's federal and regional governments. The
payments are politically sensitive in Switzerland, where many of
the country's smaller cantons rely on them to help balance their
budgets.
The SNB came in for criticism when it canceled the payments in
2013 for the first time in its history after posting an annual loss
on falling gold prices.
Stopping the payments might add to pressure on the SNB, which
has been criticized for imposing negative interest rates on
deposits it holds as part of effort to blunt the strength of the
franc. Critics say the minus 0.75% rate--an effective
charge--penalizes savers, especially because it has been levied on
government-run vocational pension funds and other private
funds.
An SNB spokesman said it was too early to make assumptions about
the central bank's full-year result, but that if returns don't
improve then the payments and dividends could be suspended
again.
Analysts said while the currency markets had moved against the
SNB in the first half of the year, this could change in coming
months if the dollar or the euro appreciate against the franc.
"If the dollar-franc gains by 1 cent the SNB could make an
exchange rate profit of 2.2 billion francs, and given our
expectations for a weaker franc and stronger equities, the SNB
could make a second-half profit of around 23 billion francs," said
Lukas Gehrig, an analyst at Credit Suisse.
The cap on the franc was aimed at protecting the Swiss economy,
which relies on exports, particularly to the 19-nation
eurozone.
The franc gained versus the euro at the start of the year in
anticipation of the European Central Bank launching its bond-buying
program, weakening the euros and forcing the Swiss central to
intervene again in the currency market. The SNB decided on Jan. 15
to scrap the cap to avoid amassing further reserves of euros, which
had pushed its currency reserves to more than 500 billion
francs.
Write to Neil MacLucas at neil.maclucas@wsj.com