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Thursday, 27 November 2014

The Ides of August

Currency deals put Swiss central bank on the spot

Philipp Hildebrand has a Julius Caesar-style problem. The Roman emperor wanted his spouse to be above suspicion. Following revelations about his wife’s currency trading, the chairman of the Swiss National Bank must wish he could say the same.

Last August Kashya Hildebrand, a former currency trader who now runs a Zurich art gallery, swapped 400,000 Swiss francs into U.S. dollars. Three weeks later, her husband unveiled an intervention to push down the overvalued currency. A month after that, the Hildebrands exchanged U.S. dollars for 475,000 Swiss francs to finance a property deal. This wheeling and dealing left the couple around 65,000 Swiss francs better off.

According to the SNB, Hildebrand did not know about his wife’s trade until the day after it happened – and notified the central bank as soon as he found out. An investigation by PricewaterhouseCoopers has concluded that Hildebrand did not breach the central bank’s insider-trading rules.

Nevertheless, the affair leaves a bad taste. PwC was not called in until mid-December, when Hildebrand became aware of rumours about his trading. And the SNB only published PwC’s report after Sarasin, the Swiss private bank – in another blow to the country’s reputation for bank discretion – revealed that one of its employees had passed information about Hildebrand’s personal finances to a lawyer connected to the right-wing Swiss People’s Party.

Besides, the SNB’s rules look a bit lax. It’s hard to imagine the wives of Ben Bernanke, Mervyn King or Mario Draghi casually engaging in forex trading, while their husbands remained in their jobs.

The affair should not obscure Hildebrand’s achievements. He has been a perceptive and courageous central banker, leading the charge to impose tougher rules on the country’s two big banks, and masterminding the currency peg that reversed the Swiss franc’s rise.

Even so, the SNB, which has been under increasing scrutiny since the financial crisis, has a reputation to defend. The currency trading has undermined Hildebrand, playing into the hands of his political and commercial critics. Julius Caesar is said to have responded to baseless allegations of adultery against his wife by divorcing her. Hildebrand will be hoping he doesn’t have to go that far.

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Context News

The Swiss National Bank on Jan. 4 published a report into private currency dealings by its chairman, Philipp Hildebrand, amid allegations that he had profited from inside information.

The report, prepared by PricewaterhouseCoopers, shows that Hildebrand and his wife, Kashya, carried out three large currency trades during 2011, a year in which the Swiss franc rose sharply and then fell following an intervention by the SNB.

On March 10, 2011, the Hildebrands exchanged 1.1 million Swiss francs for U.S. dollars at a rate of 0.9375. According to the PwC report, the cash came from a property sale.

On Aug. 15, Kashya Hildebrand exchanged a further 400,000 Swiss francs for U.S. dollars at a rate of 0.7929. According to the PwC report, she wanted to make sure that 50 percent of the family’s liquid wealth was in U.S. dollars. According to the SNB, Philipp Hildebrand did not know about the transaction until the following day, when he immediately reported it to the bank.

On Sept. 6, the SNB intervened to peg the Swiss franc to the euro at a rate of 1.20, triggering a sharp sell-off in the Swiss currency.

On Oct. 4, the Hildebrands exchanged U.S. dollars for 475,000 Swiss francs at a rate of 0.9202. According to the PwC report, the transaction was necessary to finance a property purchase.

Swiss television quoted Kashya Hildebrand as saying she had purchased dollars in August because “it was at a record low and almost ridiculously cheap”.

On Jan. 3, Bank Sarasin announced that an information technology employee had illegally passed bank data concerning transactions by the Hildebrand family to a lawyer with close links to the right-wing Swiss People’s Party.

Philipp Hildebrand was due to offer a further explanation of his actions at a press conference on Jan. 5.

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