A year without dividends and profit distribution – what are the reasons?

The title of the post will most likely suggest that it is about some company. Well it is, except that the company is Swiss National Bank, the central bank of the nation.

SNB has this amazing history and structure of being a shareholder bank with shares registered and traded. The federal govt does not own any shares and it is diversely owned by others including cantons and cantonal banks. Though the federal govt appoints key people thereby maintaining some control over the bank. Moreover, monetary policy is a federal function but the govt does not own the bank. Unique structure

As it is a company, it has to explain to its shareholders of its profits and dividends. So, this speech by  Jean Studer,President of the Bank Council explains why this year there have been no profits and hence no dividends. This is the first time in SNB’s 100 year history that there are no profits and dividends! That is some record for a company!

Notice Mr. Studer is chair of the Bank council which oversees the SNB. The Bank’s monetary policy function is run by Governing Council. Bank Council looks at the other activities including risk management, investment policy, etc. So this explains why Studer gives this speech and not the Chair of the Governing Council.

So unlike most central banks where Governor and his deputies are supreme, the things are far more complicated here.

Going back to Studer:

Believe me when I say that I would rather choose a more inspiring topic to talk to you about today. But let us not beat around the bush. Unfortunately, the 2013 financial year will be the first time in over one hundred years that it is not possible for us, esteemed shareholders, to reward your loyalty to our institution with a dividend. For this reason, the customary agenda item covering the decision on the allocation of the net profit, i.e. the determination of the dividend, is not included in your invitation to this General Meeting of Shareholders.

It is clear to me that, for many of you, this break with our long tradition of dividends may appear difficult to comprehend. After all, a business with a balance sheet total approaching CHF 500 billion should surely be capable of earning a total dividend of CHF 1.5 million. The lack of a dividend could give rise to the suspicion that the Swiss National Bank (SNB) no longer holds its shareholders in the same esteem as in the last hundred years or so, or even that they are today viewed as burdensome and not worth taking into consideration. Allow me at this point to set the record straight immediately. This interpretation, I assure you, is completely erroneous. Now, as previously, we hold our shareholders in the highest regard. My presentation will therefore address the lack of a dividend in detail.

Interestingly, SNB dividend forms a good part of Canton’s receipts. Just like we see in India where non-tax recepits playing a significant role in certain states:

For the first time since the introduction of the current distribution regulation twenty years ago, we are also unable to make any distributions to the Confederation and cantons for the 2013 financial year. As a former member of Neuchâtel’s cantonal government, I am only too aware that the lack of this distribution is painful for public finances. After all, as in previous years, most cantons budgeted for these receipts. Now they have to do without them completely – and this at a time when ensuring that public finances are sound, a perennial task that is never easy, is rendered even more challenging for other reasons. In the course of my presentation, I will also focus on the lack of the distributions, and on the relationship between the SNB and the cantons.

Great to know all this..

The letter itself is interesting. The history of SNB mush like Switzerland is quite different.

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