Wednesday, January 04, 2012

Swiss bank chief to respond over wife's dollar trade

swiss-bank-chief-Philipp Hildebrand
Phlilpp Hildebrand, Swiss bank cheif
(Reuters) - Switzerland's central bank chief will break his silence on Thursday over a controversial currency trade made by his wife three weeks before he imposed a cap on the Swiss franc.

Philipp Hildebrand's decision to speak came after the sacking on Tuesday of a bank employee who leaked details of the trade to the lawyer of a political adversary.

The affair goes to the heart of bank secrecy in Switzerland, whose banks are plagued by scandals over their role in tax avoidance by the world's wealthy, but where controversy over the actions of the central banker's wife has been centered on the leak of her private data rather than on the action it revealed.

Kashya Hildebrand, a former trader who also owns a Zurich art gallery, told Swiss television she "felt good" about the deal last August. Local tabloid Blick reported it had yielded a 60,000 Swiss franc ($64,400) profit on a 500,000 franc trade.

"What motivated me to buy dollars was the fact that it was at a record low and was almost ridiculously cheap," she was quoted as saying. "As I have worked in the financial and banking industry for over 15 year and always observe the markets, I felt at ease with this transaction."

The Swiss National Bank has already investigated the trade and said last month it did not breach the letter of internal rules.

On Wednesday, it bowed to political pressure and published internal trading rules for the first time -- alongside a report by auditor Price Waterhouse Coopers (PwC) on the controversial dollar purchase.

PwC said Hildebrand had not known in advance about his wife's dealings on August 15, but that one day later, he told Sarasin in an email all future dealing would need his express approval. He copied in the Swiss National Bank's (SNB) compliance department for good measure.

His caution was well warranted. On September 7 the SNB's compliance department ruled that there should be no repeat of such trades, the PwC report said. The Swiss franc cap was introduced on Sept 9.

"One could call this trade risky," PwC said in the report.

Swiss central bank rules, as well as those from the Bank of England and European Central Bank, put the onus on staff to refrain from unauthorized disclosures rather than on families to avoid trading. But officials said the spirit of guidelines demanded extra sensitivity.

"It may well be completely above board but nevertheless it leaves a bitter taste in the mouth," said one central bank official, who declined to be named.

The SNB said Philipp Hildebrand, a former hedge fund manager and vice chairman of the Financial Stability Board (FSB), would make an announcement on Thursday.

The respected banker, credited with steering Switzerland's banking system through the financial crisis, is expected to weather the storm, and won the backing of the government in a statement late on Wednesday.

"The Federal Council has no reason to question the validity of the audit findings and has expressed its full confidence in Mr. Hildebrand," it said in a statement.

Some said that the scandal was nothing more than a politically motivated attack.

"As long as allegations (of wrongdoing) turn out to be unfounded, which at the moment I think looks likely, it looks like just another attempt to discredit the central bank and its chairman," said Nikola Stephan at Informa Global Markets.


In a country which prizes itself on bank secrecy, the fact that the leak breached client confidentiality -- and that the data had found its way into the hands of Hildebrand's political rival Christoph Blocher -- initially took centre stage.

Bank Sarasin (BSAN.S), which said on Tuesday it had fired an IT staffer for the leak of customer data, apologized for the "considerable unpleasantness" caused by its employee, who turned himself over to police on Sunday.

"The bank condemns the misuse of confidential bank data for political purposes in the strongest possible terms," it said.

The data was leaked to the lawyer of Christoph Blocher, a political rival of Hildebrand.

Blocher has called for the central banker's resignation over the losses racked up trying to stem the relentless rise of the Swiss franc as funds seeking a safe haven from the euro zone crisis poured in.

But to date, Blocher, who transformed the right-wing Swiss People's Party into the country's largest political force, has stayed out of the trading embarrassment.

"There is a time to talk and a time to be quiet. In this affair, it is time for me to be silent," he has told Swiss television.

Philipp Hildebrand met Kashya, an American citizen born in northern Pakistan, when they worked as colleagues for the U.S. hedge fund Moore Capital, according to Swiss newspaper reports.

Police raided the London offices of Moore Capital, headed by billionaire Louis Bacon, in 2010, and arrested an equity trader as part of Britain's biggest swoop on an insider trading ring.

($1 = 0.9323 Swiss francs)

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