SNB Day of Dispute Beckons as Activists Prepare to Pounce

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(Bloomberg) -- Martin Alder wants to revolutionize Switzerland’s financial system, and later this week he gets his chance to take a stand.

The economist, a proponent of the so-called Vollgeld reform that would end the centuries-old setup in which lenders have the power to create money, will address the Swiss National Bank’s shareholder meeting on Friday. It’s a venue that tends to be dominated by activists, including this year environmentalists planning a demonstration to get the central bank to curtail investments in fossil-fuel producers, and a petition for a higher dividend payout.

“The annual meeting is the only place where the governing board has to answer questions from normal citizens,” said Alder, who is a member of Vollgeld campaign team. “As a citizen and a shareholder, I reserve the right to speak up in favor of democratic fairness.”

The plebiscite on Vollgeld, which translates into sovereign money in English and which would allow only the SNB to create money, is due on June 10. In Alder’s eyes, the central bank’s 700 billion francs ($714 billion) in foreign currency reserves -- built up because of its interventions to weaken the franc -- has turned the SNB into a sovereign wealth fund with insufficient democratic accountability. He says it’s now getting mixed up in politics by opposing his proposed reform.

The SNB declined to comment on Alder’s stance.

Switzerland’s central bank is organized as a joint stock company, and its annual shareholder gathering in Bern gives people such as Alder -- who bought 10 shares two years ago -- a platform to voice their criticism. Around 400 are expected to turn up at the meeting, where SNB President Thomas Jordan will address the crowd.

Read more: Why Swiss Vollgeld Vote Has the Central Bank Nervous: QuickTake

Holders of SNB stock get no say on monetary policy and only a very limited dividend. Where they have won is on the share price, which has more than quadrupled over the past year and closed at an eye-watering 8,700 francs per share earlier this month. They traded at 7,700 francs at 4:36 p.m. in Zurich on Wednesday.

The central bank’s shares are virtually risk-free, making them an attractive substitute for government bonds in a world of ultra-low interest rates. But with no public record of who is buying and selling, there’s no conclusive explanation for the increase.

Dividend Demand

Some two dozen shareholders want to capitalize on the rocketing stock price and have submitted a petition to the AGM to change the rules on dividends. That would tie the dividend limit to the actual share price instead of the nominal value, meaning that for 2017 the dividend might have been as high as 233 francs a share instead of the 15 francs paid out.

They also want the SNB’s auditor changed, so that he or she is a Swiss citizen and not linked to a foreign organization. The supervisory board recommends the two proposals be rejected.

Should arguments fail, Switzerland’s system of direct democracy of course always offers the opportunity for a grass-roots signature collection campaign to force a national vote. Vollgeld is the result of such an initiative, with another to prevent the SNB from investing in defense companies further out on the horizon. The latter’s kickoff made headlines a year ago when an 86-year-old woman was caught spray painting a campaign slogan on the central bank’s main building in Bern.

It’s an uphill battle for an outsider to change the way SNB works. While major polls on Vollgeld haven’t yet been published, the multi-party government and parliament reject it. Moreover, the majority of SNB shares are held by Switzerland’s cantons and cantonal banks, making individual shareholder initiatives hard to push though.

According to Sebastien Mena, a senior lecturer in management at Cass Business School in London, AGMs are a bit of a “theater show” rather than events that reshape an institution’s direction. Even so, “I personally think it’s very good that we let everyone speak, that’s what democracy is about.”

©2018 Bloomberg L.P.

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