National bank chief to explain transactions

SNB chairman Philipp Hildebrand has some explaining to do Reuters

Swiss National Bank chairman Philipp Hildebrand is scheduled to explain himself to the media on Thursday.

Hildebrand and his wife Kashya have been accused of timing currency transactions to profit after the SNB set a minimum exchange rate for the franc against the euro. However, both the bank and the government have said that Hildebrand did no wrong.

On Wednesday the SNB published its internal regulations on individual trading for board members, as well as a report from its auditors at PriceWaterhouseCoopers (PWC).
 
“The report from PWC shows that recent media accounts of the Hildebrand family’s transactions are partly incorrect and do not include information that the auditors would not have known,” said the central bank.

In a statement, the Swiss government said it “saw no reasons to doubt the results of the audits”.

In contrast, voices in the Swiss media have expressed doubt about the innocence of the Hildebrand family.

Newspapers including the Berner Zeitung and the Basler Zeitung have called for Hildebrand’s resignation. The Weltwoche weekly magazine called the SNB chairman a speculator and also said he would have to step down.

Other newspapers have focused their criticism on the bank and its regulations, which the Tages-Anzeiger  and Neue Zürcher Zeitung described as far too lenient.

At the international level, The Financial Times called the situation a “bad Swiss finish”, noting that the central bank “must avoid even a whiff of conflict of interest”. The story was also page one news in the International Herald Tribune and Wall Street Journal.

Information leak

The possibly dubious activity came to light after an employee of Bank Sarasin confessed to leaking information about a currency transaction by Kashya Hildebrand.

 

The bank revealed on Tuesday that the employee, who worked in the bank’s IT sector and who had subsequently handed himself over to police, had given the information to a lawyer with close links to the rightwing People’s Party.

“According to the employee, this lawyer then arranged a meeting with [People’s Party deputy chairman] Christoph Blocher, which took place on  November 11, 2011,” the bank said. 
 
It added that it had “terminated its employment relationship” with the employee, and reserved the right to take legal action.

On Thursday the public prosecutor’s office of canton Zurich launched a criminal case against the ex-Sarasin employee for a possible violation of banking law.

Dollar purchase

The revelations concern the purchase of dollars by Kashya Hildebrand on August 15. She is said to have resold them about three weeks later, after the SNB set a minimum exchange rate for the franc against the euro.
 
The Swiss media have reported that the sum in question was about SFr500,000 ($530,000) and her profit when the dollar rose as a result of the new exchange floor is said to have been about SFr50,000.
 
Kashya Hildebrand told German-language public television on Tuesday evening that since she had worked in the financial sector for 15 years, she continued to follow the markets closely and had made the purchase because the dollar was “at a record low and was almost ridiculously cheap”.
 
She said the purchase had been declared to the bank the next day, and it had made no objection.
 
An internal inquiry by the SNB last month said she had not infringed internal rules.
 
Kashya Hildebrand owns an art gallery in Zurich. She told the television that 70 to 80 per cent of the gallery’s transactions were conducted in dollars.
 
Blocher has made it known through his spokesman that he does not wish to comment. He has repeatedly criticised Hildebrand in the past for his policies as SNB chairman.

Twist?

On Wednesday, however, Weltwoche – a Swiss political weekly close to the People’s Party – claimed it was actually Philipp Hildebrand who conducted the currency deals.
 
The Zurich-based magazine said it had obtained bank statements showing that he was the one who had bought large amounts of dollars before selling them at a profit.
 
“We have all the bank statements showing the relevant transactions, plus a verbal assurance from a bank employee confirming that it was Hildebrand personally – not his wife – who ordered the transactions,” Weltwoche Deputy Editor-in-Chief Philipp Gut told the Associated Press in a telephone interview on Wednesday.
 
According to Weltwoche, Hildebrand made several large dollar transactions between March and October last year. The magazine also alleged that in two transactions dated August 15, Hildebrand bought more than half a million dollars which he then resold in September – making a profit of SFr75,000.
 
“It’s a classic forex [foreign exchange] speculation,” Gut said. “The only option for Hildebrand is to step down.”

Other Swiss media have since questioned the accuracy of the article in Thursday’s Weltwoche. The online edition of 20 Minuten reported that the Weltwoche could not document all of the transactions in question. The free daily commuter paper also quoted a Sarasin Bank spokesman emphasising that it was an IT employee and not a client adviser who had tattled on Hildebrand.

“This client adviser spoke neither with the press nor with the People’s Party, nor did he share any confidential information. To our knowledge, there is no criminal complaint by that customer adviser against Mr Hildebrand ,” Sarasin spokesman Benedikt Gratzl said.

Franc-dollar exchange rate

On August 15, 2011, SFr500,000 would have bought $642,211

At midday on September 6, the day the SNB announced the minimum franc-euro exchange rate, $642,211 would have bought SFr505,497.

The following day, after the announcement, the same amount would have bought SFr528,951.

The franc value climbed during the month. At its highest point on October 10 $642,211 would have bought SFr595,169.

Swiss National Bank

The SNB has exclusive rights to print money in Switzerland and is charged with ensuring price stability. 

It has the legal status of a joint stock company, with Switzerland’s 26 cantons each holding a significant share in the bank.

The SNB is obliged to hand over two-thirds of its excess profits to the cantons each year and a further third to the government.

In the 1970s, the SNB intervened in the currency markets to stop the franc gaining in value against the German Deutschmark.

The operation was considered a success as it halted the franc’s rise, but it resulted in rampant inflation in the early 1980s.

The SNB was reorganised in the 1990s to turn it into a more streamlined organisation. The central bank’s independence was also written into the Swiss constitution, with the changed version coming into force in 2000 after a referendum.

The SNB’s independence was reiterated in the revised National Bank Act in 2004. At the same time, the SNB’s supervisory council was given greater strength to oversee operational standards.