Hildebrand Stung by Wife’s Transactions

By Klaus Wille - Jan 5, 2012 2:53 PM GMT+0700

Philipp Hildebrand is under pressure to explain how he can act as guardian of the Swiss franc and allow his wife to trade the currency at the same time.

Hildebrand, head of the Swiss National Bank (SNBN), will today break his silence on his wife’s purchase of dollars in August, the SNB said. That trade came three weeks before policy makers announced their biggest franc intervention since the 1970s. While an SNB probe cleared him of wrongdoing, some lawmakers and academics say the 105 year-old institution must do more to move away from a culture of bank secrecy.

“The SNB’s information policy was not very fortunate and they underestimated the momentum,” said Georg Lutz, a political scientist at the University of Lausanne, Switzerland. “If Hildebrand can’t break free from this media mess, he must consider his resignation. The loss of confidence is so dramatic that he might become a reputation risk for the central bank.”

Hildebrand’s central bank only agreed to publish rules on personal financial ethics yesterday following days of speculation and local media alleging the former hedge fund manager of using insider knowledge to his advantage. While all three currency transactions that were investigated more closely were cleared, a dollar purchase over $504,000 carried out by Kashya Hildebrand without her husband’s knowledge was considered “sensitive,” according to an investigation carried out by PricewaterhouseCoopers LLP last year.

Political Opponents

The SNB president will hold a press conference at 4 p.m. in Zurich today.

The controversy is giving ammunition to Hildebrand’s political opponents led by billionaire Christoph Blocher from the Swiss People’s Party, who have tried to undermine tougher financial capital rules and have called for his resignation over 2010 attempts to stem the franc’s record ascent.

“Any central banker must be willing to pay the price of full transparency,” said Hannes Germann, a lawmaker in the upper house of parliament from the Swiss People’s Party. “The last thing the SNB needs right now is an erosion of credibility or doubts in its leadership.”

The SNB last month published a statement, saying an external probe into the conduct of Hildebrand showed he didn’t use privileged information for his personal enrichment and unspecified rumors were “unfounded.” While the central bank called the case closed, Bank Sarasin (BSAN), a Basel-based private bank, said 10 days later it fired an employee who passed confidential data on Hildebrand’s transactions to Blocher.

Dollar Transactions

Hildebrand was first informed about the allegations on Dec. 15, the day the central bank left the benchmark interest rate (SZLTTR) at zero and pledged to defend its minimum exchange rate of 1.20 francs versus the euro with unlimited currency purchases.

Documents released by the SNB yesterday show that Kashya Hildebrand spent 400,000 francs ($517,000) to buy dollars on Aug. 15 without informing her husband first, two days before the SNB stepped up liquidity provisions to the money market and three weeks before the currency cap was introduced.

Weltwoche magazine reported that Kashya Hildebrand reaped a gain of 75,000 francs on the transaction.

In March, the SNB president had carried out a currency transaction worth 1.1 million francs, following a Swiss property sale, with the report saying that “there’s no evidence of misuse of privileged information.” Under SNB compliance rules, board members are forced to maintain currency positions for at least six months. The investigation was carried out on transactions from Jan. 1 through Dec. 15.

‘Stupid’

The SNB’s policy until yesterday of withholding its ethics code contrasts with rules of other global central banks. The European Central Bank’s internal rules prevent council members from using “confidential information to which they have access” for “private financial transactions,” according to the bank’s website.

Federal Reserve Board members including Chairman Ben S. Bernanke are subject to U.S. ethics laws governing conflicts of interest and financial transactions. The Fed also has internal guidelines saying governors and regional reserve-bank presidents, along with their spouses, should avoid transactions that give “even the appearance of acting on confidential information.”

“It would be a scandal” if Bernanke’s spouse traded currencies, said Mark Calabria, director of financial-regulation studies at the Cato Institute in Washington. “There would be calls for him to resign. But what’s illegal and what’s stupid aren’t always the same thing.”

Criminal Complaint

Kashya Hildebrand, a former hedge fund employee, said in a statement published on Swiss Television’s 10 vor 10 program on Jan. 3 that she purchased dollars because “it was at a record low and almost ridiculously cheap” at the time. She also said that up to 80 percent of transactions at her art gallery in the center of Zurich are in dollars.

Weltwoche magazine said that the Bank Sarasin employee has filed a criminal complaint against Hildebrand for alleged insider trading. An official for the state prosecutor in the Swiss canton of Zurich yesterday declined to comment on whether the prosecutor received a complaint.

Blocher, a former justice minister who had called the SNB’s 2010 currency interventions “senseless speculation,” declined to comment. The Swiss government late yesterday reiterated its confidence in Hildebrand.

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net