October 31, 2017 / 7:29 AM / 2 years ago

UPDATE 1-Swiss National Bank reports record Q3 profit as franc weakens

(Adds detail, analyst)

By John Revill

ZURICH, Oct 31 (Reuters) - The Swiss National Bank reported its highest ever quarterly profit of 32.5 billion Swiss francs ($32.66 billion) on Tuesday as the central bank’s campaign to weaken the Swiss franc starts to pay off.

A combination of buoyant stock markets, rising gold prices and a fall in the franc’s value following a decline in European political risks combined to push the bank’s nine-month profit up to 33.7 billion francs.

The quarterly profit was nearly double the previous high of 16.6 billion francs in the third quarter of 2011, when the SNB intervened heavily in currency markets to rein in the franc.

The central bank reported a profit of 30.16 billion francs on its vast foreign currency positions built up during its efforts to relieve upward pressure on the safe-haven franc, whose strength drags on the export-reliant Swiss economy.

The SNB’s foreign currency holdings have ballooned to 747 billion francs, although currency interventions have eased in recent months as fears about a break-up of the euro zone receded following May’s French presidential elections.

Since then the franc has lost value to trade at its lowest level against the euro since the SNB rocked currency markets by scrapping its 1.20 euro-franc floor in January 2015.

A lower franc boosts the value of foreign shares and bonds the publicly listed SNB has bought with francs it has created.

The third-quarter profit included a gain of 1.93 billion francs from the increased value of its gold holdings and of 520 million francs from negative interest rates it charges banks to hold deposits.

Making a profit is not part of the SNB’s mandate, but the cash it generates makes a substantial contribution to the coffers of Switzerland’s federal government and 26 cantons.

A profit of 24.5 billion francs last year helped push the Swiss federal budget into a surplus after the central government received a payout of 580 million francs.

UBS economist Alessandro Bees said the SNB had benefited from an unusual set of circumstances with the franc depreciating while bond and gold prices have both risen.

“Everything is in the SNB’s favour at the moment, and although it’s hard to say where the full year will end, I think the bank is on course to make a record profit - or be close,” Bee said.

$1 = 0.9952 Swiss francs Editing by Michael Shields

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