October 31, 2018 / 7:09 AM / 21 days ago

UPDATE 1-Swiss National Bank reports a Q3 loss of 12.94 bln Sfr

(Adds detail, analyst comment)

By John Revill

ZURICH, Oct 31 (Reuters) - The Swiss National Bank on Wednesday reported a 12.94 billion Swiss franc ($12.88 billion) third-quarter loss as the Swiss franc’s recent rise, triggered by trade war fears and concern over Italy, cut the value of foreign currency holdings.

The central bank made a 10.51 billion franc loss on its foreign currency investments, which stand at 753 billion francs, while its gold reserves registered a valuation loss of 2.79 billion francs.

The result meant the SNB has, so far, recorded a loss of 7.83 billion francs in the year to date, down from a 33.7 billion franc profit at the nine-month stage in 2017.

The SNB has built up a large haul of foreign currency investments during its campaign to weaken the Swiss franc, which the bank continues to describe as “highly-valued.”

Escalation in the U.S.-Chinese trade conflict and uncertainty about the Italian government’s budget increased upward pressure on the safe-haven franc during the third quarter.

The currency gained 1.6 percent against the dollar and nearly 2 percent against the euro during the quarter. The SNB has 36 percent of its foreign exchange reserves in the dollar, and 39 percent in the euro, according to data released on Wednesday.

The franc’s appreciation lowered the value of the U.S.- and euro-denominated bonds and stocks the SNB holds, as well as the interest income and dividends from them when converted to francs.

The SNB holds 20 percent of its investments in equities, with stakes in companies including Starbucks, Facebook and Apple.

It holds 68 percent of its reserves in government bonds and 12 percent in other bonds.

Making a profit is not part of the SNB’s mandate. Instead the central bank targets price stability, which it defines as keeping annual price rises under 2 percent.

Still, the loss is unlikely to hurt the SNB’s ability to pay a dividend to the Swiss government and the country’s 26 cantons - or states.

That is because the SNB has a distribution reserve of 67.3 billion francs after it posted its biggest profit it its 110-year history last year.

“The SNB will probably post a loss this year because of the franc’s appreciation and the rise in interest rates which pushes down the value of its bond portfolio,” said Alessandro Bee, an economist at UBS.

“But they will still be able to make a payout because of the big profit they made last year.”

$1 = 1.0050 Swiss francs Reporting by John Revill, editing by John Miller

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