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Hildebrand Quits SNB After Struggle to Restore Credibility

SNB Chairman Philipp Hildebrand
SNB Chairman Philipp Hildebrand. Photographer: Gianluca Colla/Bloomberg

Philipp Hildebrand resigned as head of the Swiss central bank four days after pledging to fight for his job in a furor over his wife’s currency trading.

Swiss National Bank Vice President Thomas Jordan, 48, was appointed interim chairman after the surprise announcement at a news conference in Bern that Hildebrand called today.

“I came to the conclusion that it’s not possible for me to deliver definite proof that my wife requested the currency transaction without my knowledge,” Hildebrand, 48, said.

The episode called into question Hildebrand’s credibility as guardian of the Swiss franc, and pressure on him to resign increased following media reports that his family may have profited from inside information. While the government said it still supports the SNB head, and an internal investigation cleared him of wrongdoing, the purchase of $504,000 by Kashya Hildebrand in August, three weeks before the SNB imposed a currency cap, was found to be “sensitive.”

Economists at VTB Capital and Swissquote Bank SA said his departure will leave investors testing the franc cap.

“The market will now be questioning whether the credibility of the euro-franc 1.20 floor is in jeopardy,” said Peter Rosenstreich, chief currency analyst at Swissquote in Geneva. “Any serious threat to the floor will be immediately met with an aggressive response.”

Franc Determination

The Swiss currency surged after the announcement to as high as 1.2108 per euro. It traded at 1.2131 as of 5:51 p.m. in Zurich, 0.1 percent stronger than its closing price on Jan. 6. The SNB said in a statement that it will continue to defend the franc cap of 1.20 versus the euro with the “utmost determination.”

Hildebrand’s departure from the SNB’s three-member board deprives Switzerland of a policy maker who managed to stem the franc’s rally to records against the dollar and the euro, which had threatened to derail the economy.

“Jordan is the likely replacement for the top job,” Geoffrey Kendrick, head of European currency strategy at Nomura International in London, said in an e-mailed note. “This will leave a replacement role needed for a third position on the board. This is very likely to be an internal candidate.”

The SNB on Dec. 15 kept borrowing costs at zero and maintained its pledge to defend its franc ceiling with unlimited currency purchases if needed. The central bank will hold its next quarterly monetary assessment in March.

“In times like these, credibility needs to be iron-clad,” Hildebrand said today. “As soon as a central banker realizes that the credibility isn’t warranted under all circumstances, he has to do what I did today.”

SNB Policy

“We don’t expect any change in the conduct of Swiss monetary policy,” said Julien Manceaux, an economist at ING Group in Brussels. “Monetary conditions should remain accommodative and we still believe that the current euro-franc floor is here to stay, with or without Philipp Hildebrand.”

Hildebrand is not the first European central banker to leave before the end of their term in the past year. Bundesbank President Axel Weber and European Central Bank Executive Board member Juergen Stark both quit over the ECB’s bond-buying program, while Lorenzo Bini Smaghi also left the board prematurely.

Central bankers have come unstuck by controversy in the past. Ernst Welteke, Weber’s predecessor, resigned in 2004 after accepting hospitality from Dresdner Bank AG and Bayerische Motoren Werke AG. Antonio Fazio resigned as governor of the Bank of Italy a year later in the face of two criminal probes into whether he favored Italian lenders in takeover battles.

Hildebrand Efforts

Hildebrand joined the central bank in 2003, becoming its youngest ever policy maker, and took over as president in January 2010. Before that he was chief investment officer at private banks Vontobel Group in Zurich and Union Bancaire Privee in Geneva.

As head of the SNB, he helped toughen financial regulation, forcing UBS AG and Credit Suisse Group AG to boost capital buffers. He also lowered borrowing costs to zero and in September introduced the first currency ceiling since the 1970s to help protect the economy and fight deflation threats.

As the global financial crisis spurred investors to buy francs, a haven in times of turmoil, the central bank tried to initially stem its advance by selling the currency in the 15 months through June 2010. Hildebrand introduced the cap in September after the franc reached a record against the euro, trading near parity in the previous month.

‘Record Low’

That move came three weeks after a currency purchase by Kashya Hildebrand. A former hedge fund employee who owns a Zurich art gallery, she has defended the purchases, saying she bought dollars because the currency was “at a record low and almost ridiculously cheap.” While Hildebrand informed the SNB on the following day and later donated currency profits to a charity, lawmakers including Christoph Blocher from the Swiss People’s Party had called for his resignation.

Hildebrand said that his departure “saddens me greatly,” calling the past three weeks “difficult.”

Hildebrand’s “departure was inevitable,” said Neil MacKinnon, global macro strategist at VTB Capital in London. “It’s unfortunate but his position was untenable. Markets will be looking at the SNB to carry on as normal.”

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