16 Jan 2015
SNB shcok: The immediate impact - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank explained that according to their first estimates, the direct impact on the P&L of the SNB will be as follows...
Key Quotes:
"16.25% (please see Appendix)* CHF500 billion = CHF81.25 billion in losses on the FX portfolio. We assume that the SNB has bought another CHF10 billion to defend the peg. The SNB also holds gold (around CHF30 billion), so we expect another 5 billion in gold losses as XAU/CHF dropped by 13 percent. Total losses amount CHF86.25 billion (81.25+5) according to our calculations."
"The immediate effect for the Swiss economy will be negative, i.e.: Swiss products will become around 15% more expensive for eurozone citizens. What’s more, imports from the eurozone will become cheaper, which will undermine economic growth going forward as Swiss consumers could postpone consumption."
"Inflation will become more negative, but the precise effect remains unclear. Indeed, there are several distortive factors such as the hedging activity of Swiss companies. Right after the introduction of the floor in September 2011, the immediate effect on prices remained largely unclear. However, on the mid-term we expect a large negative impact as our models suggest that around 5% of every 1% currency move feeds through. Given the (weighted) 16.25% drop in 2 days and this drop in oil prices we foresee negative inflation in Switzerland of around -1.5% in 2015."
"The cantons will feel the pain from the step as well. The profit distribution will remain unsustainable as the annual result of the SNB will be negative. Total equity+provisions are around CHF80 billion (FX provision + distribution reserve + equity), so the SNB is close to negative equity."
Key Quotes:
"16.25% (please see Appendix)* CHF500 billion = CHF81.25 billion in losses on the FX portfolio. We assume that the SNB has bought another CHF10 billion to defend the peg. The SNB also holds gold (around CHF30 billion), so we expect another 5 billion in gold losses as XAU/CHF dropped by 13 percent. Total losses amount CHF86.25 billion (81.25+5) according to our calculations."
"The immediate effect for the Swiss economy will be negative, i.e.: Swiss products will become around 15% more expensive for eurozone citizens. What’s more, imports from the eurozone will become cheaper, which will undermine economic growth going forward as Swiss consumers could postpone consumption."
"Inflation will become more negative, but the precise effect remains unclear. Indeed, there are several distortive factors such as the hedging activity of Swiss companies. Right after the introduction of the floor in September 2011, the immediate effect on prices remained largely unclear. However, on the mid-term we expect a large negative impact as our models suggest that around 5% of every 1% currency move feeds through. Given the (weighted) 16.25% drop in 2 days and this drop in oil prices we foresee negative inflation in Switzerland of around -1.5% in 2015."
"The cantons will feel the pain from the step as well. The profit distribution will remain unsustainable as the annual result of the SNB will be negative. Total equity+provisions are around CHF80 billion (FX provision + distribution reserve + equity), so the SNB is close to negative equity."