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SNB Chief May Escape Wrath Shareholders Heaped on Hildebrand

SNB Successor May Escape Wrath Heaped on Hildebrand
Founded in 1907, the Swiss central bank has the legal status of a corporation, with 62 percent of its shares held by cantons, regional banks and public institutions. Photographer: Gianluca Colla/Bloomberg

Jan. 23 (Bloomberg) -- As central bankers around the world try to serve populations and find consensus with fellow policy makers, the next president of the Swiss National Bank has yet another group to contend with: shareholders.

Philipp Hildebrand’s successor will join chiefs in a handful of countries from South Africa to Greece whose central banks are companies open to investors. The new president, if appointed by then, will attend an annual meeting on April 27 to face shareholders expecting to receive a dividend that the bank has paid out every year since 1921.

Last year, a record loss forced Hildebrand to threaten to deprive investors dominated by Swiss cantons of payments they took for granted. Their criticism emboldened calls for his resignation before the former SNB president was forced to quit because of a currency transaction by his wife. For Thomas Jordan, the interim chief and frontrunner to succeed Hildebrand, a return to profit may augur a smoother time than his predecessor endured.

“After last year’s strong criticism, this will come as a relief to Jordan,” said David Marmet, chief Swiss economist at Zuercher Kantonalbank, the biggest of the Swiss publicly owned cantonal banks. “If shareholders are happy, it’s one thing less for him to worry about.”

Founded in 1907, the Swiss central bank has the legal status of a corporation, with 62 percent of its shares held by cantons, regional banks and public institutions. Private shareholders own the remaining 38 percent but have limited voting rights.

Money Spinner

The SNB on Jan. 13 reported a full-year profit of 13 billion francs ($13.9 billion) and pledged to distribute 1 billion francs to cantons and the federal government after the franc cap of 1.20 versus the euro helped generate 8 billion francs on its currency holdings. The bank’s shares ended trading up 15 percent on the day the earnings were released.

SNB shares fell 0.6 percent to 1,049 francs at 11:33 a.m. in Zurich. The central bank has a market capitalization of 105.5 million francs, compared with 178 billion francs for Nestle SA, the company that carries the biggest weight in the benchmark index.

While this year’s SNB payment to cantons and the federation will be less than half of 2010’s 2.5 billion francs, the return to profit may still help soothe disgruntled shareholders.

‘It Helps a Lot’

“After last year’s announcement, we didn’t budget any money for this year,” said Flavio Buesser, secretary general at the finance ministry in the canton of St. Gallen, in a telephone interview. “Now, we get 40 million francs. It’s not decisive but it helps a lot as our budget is pretty strained.”

The SNB is one of just a few central banks with a similar holding structure. The Bank of Greece has some 19,000 shareholders, with the state controlling 8.9 percent. In South Africa, the central bank has more than 600 shareholders and Belgium’s central bank is 50 percent owned by the state and pays an annual dividend. In the Republic of San Marino, banks hold about 30 percent of the central bank’s shares.

The SNB’s shares have gained about 5.1 percent in the past year, while the benchmark Swiss Market Index fell about 7.3 percent. In Greece, which has been at the heart of the euro region’s fiscal crisis, the central bank lost 55 percent over that period, while Belgium’s central bank declined 35 percent.

The South African central bank’s stock is traded on an over-the-counter basis and it has more than 660 shareholders, according to its website. In the Republic of San Marino, shares are owned by the state and banks, and aren’t openly traded.

ECB, Fed

The European Central Bank is owned by the European Union’s 27 national central banks, which contribute a share capital of 10 billion euros ($13 billion). The 10 non-euro area national central banks are not entitled to any ECB profits nor are they liable to fund possible losses.

The U.S. Federal Reserve consists of a board of governors, which is an agency independent of the executive, and 12 regional reserve banks. Though some private banks are required to subscribe to equity in these institutions, this equity cannot be sold and entitles the owners to only a partial role in selecting directors of the regional banks. The remainder of these appointments, and final approval of regional presidents, rests with the board in Washington.

SNB shareholders have received an annual dividend consistently during nine decades and that makes the investment more like a bond, said John Plassard, director at Louis Capital Markets SA in Geneva.

‘Never Failed’

“Since 1921, the SNB has never failed to pay this dividend,” said SNB spokesman Walter Meier.

While the SNB is politically independent, and shareholders don’t have a say in how the profit is used, its ownership structure adds to scrutiny on its operations. Hildebrand, 48, who resigned on Jan. 9, drew criticism last year after saying that the central bank may scrap its profit distribution following a record loss of $21 billion.

The SNB tried to weaken the franc through unprecedented currency purchases in the 15 months through June 2010, a policy Christoph Blocher, the Swiss People’s Party lawmaker who challenged Hildebrand before he quit, called “senseless speculation” with state funds.

Blocher became embroiled in the furor leading to Hildebrand’s resignation when he received leaked details of a $504,000 currency transaction in August by the central banker’s wife. The former justice minister said that Hildebrand was “no longer able to act” as head of the SNB.

Results Due

According to the National Bank Act that governs the SNB, the central bank can disburse a maximum dividend of 6 percent of the 25 million francs paid-in capital, giving shareholders as much as 15 francs per share. The SNB will publish detailed full-year earnings on March 8.

“Despite its losses, the SNB was right in intervening in the foreign currency markets,” said Christian Wanner, a finance official from the region of Solothurn, which is set to receive 21 million francs, accounting for about 4 percent of tax income. “Philipp Hildebrand did a good job.”

The region of Bern is the largest shareholder with 6.6 percent, followed by Theo Siegert, a German entrepreneur who controls 5.6 percent, worth about 5.8 million francs. He considers the stake as a “mere financial investment,” Handelszeitung reported in April 2011, citing people close to the investor. Siegert, 64, teaches at a university in Munich. He couldn’t be reached by telephone and didn’t respond to e-mails.

“Cantons can use every franc,” Hannes Germann, a lawmaker from the Swiss People’s Party, said in a telephone interview. “Some had already started thinking about tax increases following the central bank’s warning last year. Now, they have a little bit more room.”

In a speech titled ‘Does the SNB Need Equity?’ on Sept. 28, Jordan, also 48, told an audience in Basel that the central bank is aware that “volatile annual results are neither simple nor pleasant” for regions.

Still, “the SNB doesn’t have a mandate to make profits,” he said. “There may be years in the future in which no distribution can be made.”

To contact the reporter on this story: Klaus Wille in Zurich at

To contact the editor responsible for this story: Craig Stirling at

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