January 9, 2012 / 4:52 PM / 8 years ago

Profile: Philipp Hildebrand's very Swiss finish

ZURICH (Reuters) - Philipp Hildebrand, the head of the Swiss central bank who resigned on Monday after a trading scandal involving his wife, was an ambitious regulator who had been dogged for months by political adversaries.

The 48-year-old former hedge fund manager’s two-year chairmanship of the Swiss National Bank was rocky at best. He had faced down calls to go after he ran up record losses in 2010 to try to halt the rise of the Swiss franc, an effort which cost the central bank 26.5 billion francs.

His fortunes seemed to have turned last September when the SNB successfully set a cap on the soaring Swiss franc at 1.20 per euro. But it emerged last month that Hildebrand’s wife Kashya, a former hedge fund trader who now runs a Zurich art gallery, had bought 400,000 Swiss francs worth of dollars three weeks before her husband oversaw those steps.

Hildebrand said he only learned of the trade the following day, rejecting claims that he had personally authorized the currency deal, which made a sizeable profit. But he told a media conference on Monday he could not provide final evidence that he had been unaware of the trade and had decided to step down to protect the credibility of the Swiss bank.

“I am sad to take this step, I loved this job, I fought like a lion for it,” he said.

Hildebrand faced vociferous opposition to his tenure, driven mainly by Christoph Blocher, mastermind of the right-wing Swiss People’s Party (SVP). Last year Blocher accused the SNB under Hildebrand of “megalomania or incompetence” for his attempts in 2010 to stop the franc’s rise.

Besides the franc, the Swiss central banker was ambitious in his plans to make Swiss banks safer, pushing for particularly exacting new rules, which would go further than most other countries in Europe and the United States. Such plans for banks like UBS and Credit Suisse made him enemies at home.

At his farewell press conference on Monday, he said he was proud of what he had achieved, noting he had spoken out strongly and early in favor of the tough capital rules. “If you want to make enemies, try to change something,” he said, quoting former U.S. President Woodrow Wilson.

Internationally, he was building an image as a trail-blazing regulator, only in November being appointed to the vice chairman of the Financial Stability Board, a post he will also relinquish.

“We all know that he is a man of total integrity, extraordinary ability and, most important of all, courage. Such people are rare. His country will miss him,” Bank of England Governor Mervyn King said in a statement.

MARKET FORCES

When Hildebrand took over at the helm of the SNB in January 2010 after seven years as a board member, he was the youngest president in the history of the century-old bank. Born in the Swiss capital of Bern, he had studied — mostly politics and international relations — in Toronto, Florence, Harvard and Oxford.

Though he was no economist, Hildebrand knew the territory. His first real job had been with the World Economic Forum in Geneva, organizing speakers from the financial services industry for its annual talkfest at Davos. They included George Soros, who had made his fortune betting against the Bank of England, and who helped him get a position at New York-based hedge fund Moore Capital Management, which specialized in speculating on interest rate futures and monetary policy.

As a young hedge fund manager, Hildebrand had in 1996 written a letter to influential Swiss newspaper Finanz und Wirtschaft, demanding that the SNB intervene to weaken an overvalued franc. “The markets are powerful but they often also allow themselves to be led,” he asserted at the time.

He learned the value of perseverance at an early age, when as a freestyle swimming champ he narrowly missed qualifying for the 1984 Olympics. Swimming is a very good learning process for life, points out his former coach Anthony Ulrich. “It’s an endurance-oriented sport,” he says. “You learn to lose and keep your head above water at the same time.”

Scarcely had Hildebrand settled into his new office at the edge of Lake Zurich — hanging a favorite black and white photo of childhood idol Mohammed Ali on the wall — when he was called into action. With the franc soaring again during the euro zone debt crisis, to around 1.4 per euro, Hildebrand ordered another round of massive interventions. Between February and May 2010, the SNB bought 147 billion francs in foreign currency, about a quarter of Swiss GDP.

AMBITIONS

The SNB is not the only central bank to have the problem of a strengthening currency. The combined firepower of the Group of Seven rich nations did succeed in stabilizing financial markets in March, when their first joint intervention since 2000 stemmed a sharp rise in the yen in the wake of Japan’s earthquake.

But Hildebrand had no such support. Switzerland’s right wing said the government should have been more wary of appointing a former hedge fund manager with no qualifications in economics. After he stopped intervening, investors on world markets pushed the franc even higher. It hit a new record at almost parity with the euro last August before the bank set the cap, which has not been breached.

The success of that move put the Swiss People’s Party on the back foot. In October, Blocher’s party fared poorly in elections. It November it was tipped off about Kaysha’s trades.

The currency struggle was just part of Hildebrand’s ambitions. His 2010 forex intervention involved nearly a quarter of the country’s GDP, but the risk posed by Swiss banks is much greater - their assets amount to at least six times the country’s economy.

Hildebrand, who is credited with playing a central role in saving UBS from collapse at the height of the crisis, pushed for new rules to go further than most, with UBS and Credit Suisse needing a capital buffer nearly three times bigger than their global rivals.

He has been praised by the likes of Paul Volcker and Timothy Geithner and, along with Britain’s top financial regulator Adair Turner, is seen as an innovator. The banks say high capital cushions will be costly to maintain and crimp lending.

Besides the banks, Blocher’s anti-immigrant, anti-European Union party, now the biggest in Switzerland, wants parliament to limit the SNB’s powers beyond ensuring price stability.

“Mr Hildebrand is not your average central banker. He is a very activist, self-assured national banker ... Swiss politicians can be very small-minded so an international star generally doesn’t go down so well,” Peter V. Kunz, professor at the Institute for Economic Law at Bern University, said last year.

In 2010, Hildebrand was also the world’s highest paid central banker on 833,000 francs, and is rarely seen in anything but an elegant navy blue suit and luxury Breguet watch. Having spent much of his early adult life outside Switzerland, he lacks political allies at home. His towering 1 meter 94 stature gives him an aloof air, and his push for stronger regulations has raised hackles among a cozy Swiss elite more used to backroom deals and a strict code of preserving client secrecy.

Additional reporting by Catherine Bosley and Martin de Sa'Pinto, Paul Carrel in Frankfurt, Naomi Tajitsu in London; Editing by Sara Ledwith and Mike Peacock

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