value and opportunity

Before Nate at Oddball “discovers” all the <2off the radar" European stocks I thought that I start a series about stocks which are in my opinion are strange or uncommon. A little competition in this area might not hurt…

IMPORTANT: Most of those stocks will not be really investments. This is “just for fun” mostly. So if you are looking for “actionable ideas with a catalyst” you might consider skipping this series. If you are however more liek a “stock collector” feel free to read and comment.

In the internet there is often a lively debate about the fact that the US Fed is in principle privately owned. I don’t want to touch this now as this pretty quickly goes into the racist or religious direction.

So lets look at two other National banks. Not many people know that both the Swiss National Bank (ISIN CH0001319265) and the Belgium National Bank (BE0003008019) are both listed stock companies.

Swiss National Bank (ISIN CH0001319265)

The SNB has 100 thsd shares outstanding giving it a market cap of ~100 mn “Swissies”. Not a lot for a bank who can print one of the hardest currencies in the world and is holding 400 bn CHF foreign reserves ? To make things more interesting, the SNB had a profit of 6.5 bn CHF (!!!) in the first 6 month of the year. So ist his a P/E 0.01 investment ?

Not so fast there are some details to consider.

1. Shareholders do not really have rights as most of the normal shareholder’s rights are capped through a special Swiss law

2. The same law also fixes the maximum dividend amount at 15 CHF. Any profit above goes to the Government

So effectively we do have a perpetual Swiss Frank Bond with a yield of around ~1.5 % at current prices, which for CHF is not unattractive.

As the stock basically trades in line with interest rates the long decline in rates actually led to a very nice and steady performance over the last 10-15 years:

For some strange reason a German professor is the largest private shareholder of SNB with almost 5.6% which caused some raised eyebrows in Switzerland. According to the Economist only ~53% are held by Swiss Government entities.

Summary: If you are bullish on the Swissie it could be a good hedge to buy SNB shares. additionally it might be just fun to be shareholder of the Swiss Nationalbank. If you have some spare time the annual meeting might be good entertainment. However it clearly does not fit into my portfolio.

Belgium National Bank (BE0003008019)

The Belgium National bank is also a listed company. Interestingly tiny weak Belgium National Bank has a market cap of 900 mn EUR ~8 times that of “Mighty” SNB. How comes ?

This might have something to do with the following developement of dividends since 1998:

	Dvd/share
31.12.1998	58.67
31.12.1999	59.16
29.12.2000	59.87
31.12.2001	61.47
31.12.2002	63.00
31.12.2003	64.13
31.12.2004	65.33
30.12.2005	66.67
29.12.2006	68.47
31.12.2007	70.00
31.12.2008	72.00
31.12.2009	75.00
31.12.2010	126.48
30.12.2011	166.12

So clearly the BNB is paying out a lot more than the SNB having a nice yield of around 6.2%. The “Mechanics” of the dividend are published unfortunately only in Dutch or French.

If I understood correctly the dividend is determined the following way:

1. A guarantee dividend of EUR 1.5 per share
2. Additionally the National Bank reserves a part of the profit which prevents that all profit is distributed to the Government. The yield on this reserve is then distributed to the shareholders.

In the latest shareholder presentation there are some slides regarding this reserves and average yields etc.

I didn’t fully understand the mechanism but it looks like that BNB shareholders were one of the beneficiaries of expanding central bank balance sheets.

Summary: Although i don’t fully understand the mechanism the BNB profit distribution mechanism looks quite interesting. I am not sure if this is an investment right now but something to keep on the radar screen maybe as an alternative to long term bonds with in implicit Financial crisis option. The stock actually would qualify for the “Exotic security” category as well.