This year, the absence of the Swiss National Bank’s billion franc dividend payouts is causing consternation at federal and cantonal levels. It will, however, mean new business for the banks.

After a record loss of 132 billion francs last year, the Swiss National Bank (SNB) decided at the beginning of January to forgo making distribution payments to the state. 

In 2021 and 2022, the SNB transferred six billion Swiss francs to the Confederation and the cantons, of which the cantons received a maximum of four billion and the Confederation a maximum of two billion Swiss francs.

The SNB's distribution policy was recently criticized by economists belonging to the «SNB Observatory». Former central banker Stefan Gerlach and former SNB advisor Yvan Lengwiler, who are part of the group, said that it didn't make sense for the SNB not to make payments to the Confederation and cantons this year, as finews.com reported.

From Six Billion to Zero

Numerous federal and cantonal politicians are dismayed by the actions of the SNB Governing Board around President Thomas Jordan, while capital market specialists at the country’s banks are most likely rubbing their hands, as the absence of SNB money leaves a wide gap in the national budget that has to be filled through other channels.

The problem is, with exception of the cantons Schaffhausen and Zug, the majority of cantons were already counting on receiving a transfer in 2023 and had budgeted accordingly.

In the Red

The canton of Bern is worried that it will be at a loss if the 320 million Swiss francs from the SNB that had been firmly budgeted for do not materialize, as Swiss television «SRF,» and other media outlets reported.

The Confederation, for its part, budgeted for a maximum of 670 million francs from SNB's coffers and was able to avoid falling into the red.

What's more, if the profit allocations do not materialize in 2024, as analysts at UBS warned, the problem will become even more pressing. The investment banking departments at UBS, CS, and Zuercher Kantonalbank (ZKB), which usually help cantons and cities with bond issuances could also help to plug the budget holes. Raiffeisen Group and various cantonal banks are also active in issuances. 

Direct Investors

The Confederation itself comes straight to investors with bonds. Those requiring a minimum volume of 100 million Swiss francs are usually issued by cities and cantons.

Smaller municipalities finance themselves through private placements or loans. The leading financing platform in this area, the Zurich fintech Loanboox, has also noticed increased demand since the beginning of the year. The municipalities are already anticipating that less money will be allocated to them from the cantons' SNB pot, Loanboox observes.

Medium Term

In the past weeks, ZKB looked at the capital requirements with numerous public-law organizations after the SNB's decision, as it told finews.com on request. In the short term, however, the pace at which cantons, access capital markets will not change significantly.

In the medium term, ZKB is expecting an increase in interest from public corporations. «There is a certain correlation between SNB distributions and the financing needs of cantons and cities, although tax revenue plays a greater role,» the ZKB experts said.

Bern, Lugano, and Zurich

Issuances within the public sector reached a temporary peak in 2013. After this, the cantons and cities were able to survive well on taxes and profit payments from the rapidly growing SNB reserves.

In 2020 and 2021, the volume of bond issues declined by more than 60 percent. In 2022, they remained at a low of 2.6 billion francs. However, January has seen increased activity with the cities of Bern, Lugano, and Zurich having issued bonds.

According to people in the industry, bond issues are quite lucrative for cantons and cities. With an out-of-pocket fee of about 50,000 francs and issuing fees in the range of 30 to 50 basis points on the volume, up to 500,000 francs can be earned on a bond of 100 million francs.