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ZURICH, Jan 9 (Reuters) - The Swiss National Bank expects to swing to an annual loss of 15 billion Swiss francs ($15.29 billion) for 2018, it said on Wednesday, as slumping stock markets and the rising franc slashed the value of its massive foreign currency investments.
The loss would reverse the record 54.4 billion franc profit the central bank chalked up during 2017, and mainly reflected losses from its foreign currency holdings built up during the SNB’s fight to tame the strong franc.
The SNB said it expected a loss of 16 billion francs from its foreign currency positions - which are mainly held in bonds and shares - which reached 775 billion francs last year, a figure larger than the entire Swiss economy.
It also expected a valuation loss of 300 million francs on its gold holdings.
“The SNB has been hit by the slump in equities during the year, while the strengthening of the franc during 2018 has also reduced the value of its foreign currency investments when they are converted back to francs,” said Alessandro Bee, an economist at UBS.
The franc rose to around 1.125 versus the euro currency at year’s end from 1.17 at the end of 2017, reducing the franc value of the SNB’s euro denominated bonds and stocks.
“Every centime the franc appreciates against the euro means a loss of around 3 billion francs for the SNB,” said Bee.
The central bank holds around 20 percent of its reserves in stocks and the rest in bonds, whose value declined at the start of 2018.
Despite the loss SNB said it expected to make a profit distribution of 2 billion francs to Swiss cantons and the federal government after its record profit in 2017 boosted its distribution reserve.
It also plans to pay shareholders a dividend of 15 francs per share, the maximum allowed.
Making a profit is not part of the SNB’s mandate. Instead the central bank targets price stability, which is defines as an inflation rate of below 2 percent while taking account of economic developments.
$1 = 0.9813 Swiss francs Reporting by John Revill; Editing by Michael Shields