Thomas Jordan, acting chairman of the Swiss National Bank
ZURICH, SWITZERLAND – The Swiss central bank does not see any risk of inflation for Switzerland in coming months, nor any need to reduce the level of liquidity. However, distortions in the mortgage and real estate market could increase and the Swiss government will soon look at the possible need to intervene.
Thomas Jordan, vice chairman and, since Philipp Hildebrand’s resignation 9 January, interim chairman of the Swiss National Bank (SNB), was addressing the Swiss American Chamber of Commerce Tuesday 6 February in his first major policy statement since taking the reins a month ago. Jordan says the central bank is adhering to its policy of keeping a firm cap on the Swiss franc, a policy that “corrected the overvaluation of the Swiss franc to some extent”.
“Thanks to this decision, investment planning for export-oriented companies has been facilitated, and the risk of both deflation and severe structural damage to the Swiss economy has been reduced. Without this policy measure, the extreme overvaluation of the Swiss franc and its volatility would probably have persisted.”
The SNB set a minimum exchange rate of CHF1.20 per euro in early September of 2011.
A whiff of optimism, but “subdued” outlook might be best we can expect
He offered a crumb of optimism for Switzerland’s financial outlook, saying that “if the European authorities were to credibly commit to a sustainable solution soon, existing uncertainties would be reduced substantially. In such a scenario, demand for perceived safe financial assets would fall in general, and for the Swiss franc in particular”
But he emphasized that we are still living in a world with “substantial downside risks” and the picture could prove worse than today’s “subdued” economic outlook.
“Economic growth will continue to be driven by emerging markets. However, we expect growth rates in China and India – the most important countries in emerging Asia in economic terms – to remain below potential in the near term, due to prior monetary policy tightening, high inflation, and sluggish external demand. Looking at the US, recent data suggest that the situation has improved slightly. However, this should not hide the fact that economic growth in the US is likely to remain sluggish.”
He cites continuing high unemployment in the US and “the fiscal environment remains contractionary. For the euro area – Switzerland’s most important trading partner by far – the economic outlook has deteriorated since last autumn. Uncertainty about an escalation of the sovereign debt crisis is undiminished. As a result, the euro area is likely to face a mild recession in early 2012.”
Liquidity, interest rates and mortgages under debate
Jordan says the SNB’s policy has raised two questions.
“it is argued that the significant increase in liquidity since August 2011 may trigger inflation risks in the longer term. Given the current economic situation, however, expanding the supply of liquidity was a necessary monetary policy response. There is currently absolutely no risk of inflation in Switzerland. First, headline inflation turned negative in October 2011 and continued to decline through the end of the year. It is assumed to fall even further in early 2012. Second, neither our inflation forecasts nor the medium-term inflation expectations from our surveys of households and companies show any signs of inflation risks. Consequently, there is no necessity whatsoever for the SNB to reduce the level of liquidity for the time being.”
The other is the impact of long-term very low interest rates on the housing market.
“On the other hand, a long period of very low interest rates may lead to imbalances in the domestic credit and real estate markets, which may pose serious risks for financial stability. We are well aware of these risks and are analyzing them very carefully. However, due to the exceptional monetary policy situation, interest rates cannot readily be increased to address such threats. In other words, at the current juncture, monetary policy cannot react to these imbalances with conventional monetary policy instruments. Therefore, the Swiss Government is due to decide soon upon the introduction of so-called macroprudential instruments that can be used – if necessary – to mitigate potential credit and housing market distortions.”
Paul Richli will prepare report on SNB governance reform needs
BERN, SWITZERLAND – The Swiss government is beginning a review of the possible need to reform governance of the Swiss National Bank. The cabinet Wednesday 25 January announced that it has asked Professor Paul Richli to draw up an external expert report that outlines “the tasks and responsibilities currently regulated in the National Bank legislation in connection with supervision of the SNB”. He will also look at the “constitutional room for manoeuvre in terms of possible amendments”, says the Federal Council.
Two federal offices, Justice and Finance Administration, have also been instructed “to submit a proposal for an additional mandate to examine corporate governance within the SNB more closely.”
An interdepartmental working group led by the Federal Office of Personnel has been asked to draw up recommendations for a uniform set of rules if necessary after examining”the existing code of conduct on the abuse of insider information in the Federal Administration”.
The moves come in the wake of the resignation of Philipp Hildebrand as chairman of the Swiss National Bank after a scandal involving family assets. Hildebrand was found innocent of wrongdoing, but the affair prompted widespread calls in Switzerland for a review of the regulations governing board members.
Richli is the rector of the University of Lucerne and he has held, since 2001, the chair of the department of public aw, agricultural law, and theory of drafting legislation at the Faculty of Law of the University of Lucerne.
Taxpayers get CHF1 billion via federal, cantonal budget boosts
ZURICH, SWITZERLAND – Swiss federal and cantonal budgets look set to receive some CHF1 billion from the Swiss National Bank, which expects to end 2011 with a profit of CHF13 billion. A little over one-third of the profit, CHF5b, is thanks to the meteoric rise of the price of gold during the year. The other CHF8 billion is due to foreign currency positions.
The consolidated result for the year is “likely to be somewhat better” as UBS repays its 2008 bailout debt through what is called the stabilization fund.
The other CHF12b will be distributed roughly as follows:
- allocation to provisions for currency reserves, CHF3.2 billion
- CHF5b to fill the gap in the distribution reserve that goes to the Confederation and the cantons
- remaining profit to the distribution reserve.
Definitive figures and details, including movements in foreign currency positions during the year, will be released 8 March.
SNB chairman Philipp Hildebrand, who resigned following a scandal over dollars purchased by his wife, has been praised this week by a number of financial leaders outside Switzerland for his exemplary work as a central banker. EU Central Bank President Mario Draghi told a Frankfurt press conference 11 January that “we all regret the developments that led to Mr Hildebrand’s resignation because I think we will miss a very, very good central bank governor.”
Ed. note: The Financial Times has published a commentary on the implications for European financial leadership of Hildebrand’s tenure at the SNB (free, registration required)
TSR Wednesday evening ran an interview with Kashya Hildebrand from Italian TV, where she apologized to Switzerland and her husband
BERN / ZURICH, SWITZERLAND – Swiss political and economic circles were still abuzz Wednesday 11 January with the fallout from the resignation Monday of Philipp Hildebrand as chairman of the Swiss National Bank. New developments:
- the Swiss president came in for criticism for her strong backing of Hildebrand but defended herself, saying she was expressing the view of the Federal Council last Friday
- the selection process for a new bank head got underway
- Hildebrand’s contractual pay package was made public – under the terms of his contract he will continue to receive his annual salary for one year, which was CHF994,800 in 2010; he cannot work for a bank during the next six months, or 12 months in the case of the big banks, under SNB rules
- Thomas Jordan, appointed interim chairman until a new head is found, has made it clear he will maintain the CHF1.20/euro cap on the Swiss franc and continuity appears to be guiding bank policy for now
- Hildebrand’s wife Kashya, interviewed by Reuters in Singapore at an art fair, ended some speculation by saying that she had the idea for the currency exchange so it is her fault but yes, they are still happily married.
ZURICH, SWITZERLAND – The head of the Swiss National Bank may have been pushed to resign by the governing board of the bank, Swiss media, particularly in German-speaking Switzerland, are suggesting Tuesday. Philipp Hildebrand handed in his resignation Monday afternoon, after a two-week scandal sparked by information about his wife’s purchase of dollars in August and profit from their sale two months later.
TSR carries a roundup in French of what several media are reporting today, noting that conservative Christoph Blocher, former head of the UDC People’s Party appears, for now, to be the winner in the political brouhaha surrounding the scandal.
Questions remain about whether or not Hildebrand will take legal action against anyone in the case, which involved private bank data being published by Swiss magazine Weltwoche, and what role Blocher played.
Background stories, GenevaLunch
Reuters profile of Hildebrand and his tenure, 10 January
IT whistleblower says lawyer took advantage of him
Philipp Hildebrand, former chairman of the Swiss central bank
ZURICH, SWITZERLAND – Swiss central bank chairman Philipp Hildebrand, age 48, has just resigned, effective immediately, but the scandal over the theft of private bank data and the financial transactions of Hildebrand’s wife is not likely to die down quickly.
He had worked for the bank since 2003 and was named the youngest ever chairman in January 2010.
Hildebrand said at a press conference last Thursday, 5 January, that he would remain in office as long as he had the support of the Swiss Federal Council, the cabinet. He called for reform in the wake of the scandal, including greater transparency on the part of central bank governors about their own financial transactions. Full text of HIldebrand press conference presentation (pdf)
He denied wrongdoing, saying that the CHF60,000 profit on currency transactions from August to October 2011 was his wife’s responsibility; a Bank Council investigation as well as one done by PricewaterhouseCooper’s support his claim. Hildebrand’s wife is a former currency trader who now owns a Zurich art gallery and the transactions were reportedly on behalf of her business.
But observers including a number of politicians have said in the past week that even if the central banker respected the letter of the law, and even if the law needs to be changed, he acted irresponsibly. Bloomberg/Business Week quotes Peter Kunz, head of business law at the University of Bern, as saying it’s “absolutely incomprehensible” that the relatives aren’t included in the regulations. “‘From a legal point of view, Ms Hildebrand’s dollar trade isn’t problematic,’ he said. “From the point of view of morality, experienced economic experts like the Hildebrands should know that a spouse’s trades are not without problems.’”
Kashya Hildebrand’s purchase of $500,000 in August, and sale of them in October, came during a period when the Swiss franc continued to climb against the dollar and the euro. Her husband had responsibility for Swiss monetary policy and capped the over-valued franc.
The banker is scheduled to issue a statement and copies of documents at 15:15 Monday, shortly after announcing his resignation. He was earlier scheduled to appear before parliament Monday afternoon to answer questions and share documents. Parliament still has a press conference scheduled for 18:00.
The unfolding story over the weekend centred, not around Hildebrand, but the man who stole the data, who contacted three Swiss media to say he has been abused.
UDC, lawyer and IT employer tell different tales
The 39-year-old IT worker says he turned to a lawyer with the information about Hildebrand’s accounts, not because he wanted to be a whistleblower or to have the information widely published, but because he wanted to understand the significance of the information he had viewed.
The man, who lost his job at Bank Sarasin after turning himself into police, copied data from the private accounts of Hildebrand and shared it with an old childhood friend, now a lawyer and cantonal politician in Thurgau, Hermann Lei. The man who is being investigated for taking the information has been hospitalized and is under surveillance in a psychiatric unit for fear he will try to commit suicide.
But the details of what happened differ depending on the source: the IT worker and Lei, through his lawyer, both say they met with Christoph Blocher, former head of the rightwing UDC People’s Party, who has had an abrasive relationship with Hildebrand. Blocher has remained silent on the affair, but the UDC denies such a meeting ever took place.
The IT employee says he did not give Lei permission to turn the material over to Weltwoche, a Swiss political weekly magazine that published details a week ago, information that Lei’s lawyer denies.
SNB rules tightened Saturday, but parliament wanted more answers
The Bank Council, which oversees the Swiss National Bank, announced after an extraordinary meeting Saturday that it was tightening rules to include family members of the governing board and to reduce to CHF20,000, effective immediately, the amount of foreign currency board members can trade without advance clearing.
See also: GenevaLunch background stories on Hildebrand and the SNB
ZURICH, SWITZERLAND – Philipp Hildebrand, chairman of the Swiss National Bank, has resigned, effective immediately, the SNB has announced. He will issue a press statement at 15:15. Details to follow
Bank Council says “taking measures is in order”: tighter rules immediately for board members and greater future transparency
Swiss National Bank vice-chairman Thomas Jordan, chairman Philipp Hildebrand and member of the Enlarged Board, Jean-Pierre Danthine
ZURICH, SWITZERLAND – The supervisory body for the Swiss National Bank (SNB) announced after a special meeting Saturday 7 January that it is tightening measures governing board members’ personal financial transactions, effective immediately, hiring an outside body to carry out a review with an eye to longer term measures. The Bank Council has also “decided that all bank transactions effected by members of the Enlarged Governing Board between 1 January 2009 and 31 December 2011 will be reviewed by external auditors (preferably KPMG or Ernst & Young).”
The extraordinary measures follow several days of headlines where SNB Chairman Philipp Hildebrand’s family’s foreign exchange transactions in late 2011 came under close scrutiny from Swiss but also foreign media and political parties, culminating in a press conference Thursday with Hildebrand recapping events and taking questions from dozens of journalists.
At issue: Hildebrand’s wife, an experienced foreign exchange trader who now runs a Zurich art gallery, bought and sold dollars and made a sizeable profit in October 2011, close to the time when her husband was capping the Swiss franc/euro rate, and questions were raised about whether Hildebrand personally benefited from inside information. The Bank Council’s internal review as well as an independent one done by PricewaterhouseCoopers (PwC) showed no wrongdoing.
Swiss media gave his performance and explanations at the press conference mixed reviews, with French language media more generous than some in German-speaking areas. The right-wing UDC People’s Party continues to call for his resignation, but their own role in the scandal remains unclear. Hildebrand’s personal banking data was illegally shared by a Sarasin Bank IT employee with a lawyer who turned it over to Christoph Blocher, former member of the government and UDC party leader. Blocher has remained silent on the affair.
The full text of the press release Saturday from the Bank Council:
“At its meeting of 7 January 2012, the Bank Council of the Swiss National Bank (SNB) addressed issues concerning corporate governance and own-account transactions involving financial instruments. It became evident that, given the events of the past few days and developments in financial markets, as well as with a view to improving transparency, taking measures is in order.
“The Bank Council has therefore adopted the following resolutions:
With the support of external specialists, a comprehensive revision of the regulations and directives on own-account transactions involving financial instruments by members of the Enlarged Governing Board will be undertaken. The corresponding draft regulations and the revised directives for SNB employees are to be submitted to the Bank Council as soon as possible.“Furthermore, the Bank Council has decided that all bank transactions effected by members of the Enlarged Governing Board between 1 January 2009 and 31 December 2011 will be reviewed by external auditors (preferably KPMG or Ernst & Young).
“Until such time as the regulations and directives have been revised, members of the Enlarged Governing Board as well as staff members with access to privileged information must first get approval from the SNB’s Chief Compliance Officer for foreign exchange transactions which exceed CHF 20,000. The Audit Committee of the Bank Council will be informed periodically of such instances.”
ZURICH, SWITZERLAND – Philipp Hildebrand, chairman of the Swiss National Bank, met with the press at 16:00, following heavy media coverage and questions raised over the profits made from currency deals by Hildebrand or his wife in late 2011.
Hildebrand, who appeared tired but in form, first provided a lengthy summary of the incidents that led up to accusations that he may have acted illegally by allowing his family to make a profit on currency transactions. He then fielded questions in fluent German and French. He said that if he knew back in August what he knows today he would have acted differently, canceling his wife’s currency transactions and seeking the advice of the central bank’s governing board.
He was initially unaware of his wife’s purchase of several thousand dollars because “she has a strong personality” and she is personally interested in finance, he said. She owns a group of art galleries and she worked as a hedge fund trader for 15 years before turning to the art world. Plus, he added to chuckles, she reads the Financial Times every day.
He noted that he has come forward to talk about the business only now because it is only in the past two days that he has had the complete picture of what went on: the IT employee at Bank Sarasin could make a screen shot of transactions done by cell phone, but bank employees cannot make a printout, and the screen shot information was incomplete. What he saw apparently led him to believe that Hildebrand was taking advantage of his position to make currency deals. Hildebrand expressed some sympathy for the employee, but added that the man had made the mistake of turning to the wrong person with the information he held.
The Bank Council’s internal committee that reviewed the transactions and the independent investigation team from PricewaterhouseCooper’s had access to complete bank files for the Hildebrand family for the year 2011 and they found no evidence the chairman had broken the law.
Hildebrand said he knew who had received the information from the IT man, as well as who gave it to Weltwoche news magazine, but he preferred not to give names. He was on stage with the president of the Bank Council, which oversees the SNB, Hansueli Raggenbass, who didn’t hesitate to provide the name: lawyer Hermann Lei from Thurgau, who then gave the information to UDC People’s Party strategist and former leader Christophe Blocher.
The chairman of the bank says he regrets today that he did not take action in August, and he believes more stringest regulations are needed, and more transparency. For a start he would like to see all transactions over CHF20,000 by board members and their families approved in advance.
(Ed. note: GenevaLunch covered the press conference as it unfolded, on Facebook and Twitter.)
TSR reports that a Zurich judge officially opened an investigation into the matter of the IT employee who admitted to police he turned over to a lawyer private banking data on the Hildebrand family. The judge is not, however, investigating possible wrongdoing by Hildebrand.
NZZ noted before the press conference that the case leaves many questions open, in addition to whether or not the central banker has done wrong, notably, who is trying to undermine the Swiss central bank and why.
ZURICH, SWITZERLAND – The Swiss National Bank Wednesday took the unusual step of publishing its internal regulations governing the private financial activities of its senior management, as part of efforts to clear chairman Philipp Hildebrand’s name in the face of accusations he profited from his position.
By comparison, other central banks tend to make public their regulations concerning investment and disclosure for senior management.
The SNB also published the independent report from an investigation it had asked PricewaterhouseCoopers to make into Hildebrand’s transactions, which the banker’s wife, a former currency trader, said were her own.
Documents were taken from Bank Sarasin and given to a lawyer who is close to the right-wing UDC People’s Party that purportedly showed Hildebrand and his wife making a CHF60,000-plus profit on currency transactions.
Hildebrand is scheduled to meet the press Thursday in Zurich, to clarify the situation.
SNB internal regulations (German and French) and the PwC report (Ger)
Bloomberg/Business Week article, including EU and US Federal Reserve regulations on management private investment rules
ZURICH, SWITZERLAND – The latest media accusation in the debate over the purchase of dollars and profits from it by Philipp Hildebrand’s family surfaced Wednesday, with Weltwoche weekly political magazine obtaining copies of documents purportedly showing that the Swiss central bank chairman, and not his wife, made the currency transactions (background story, GenevaLunch).
The political magazine also says that Hildebrand bought and sold dollars at least two other times during the year. And it cites a client relations manager at Bank Sarasin as saying that the orders were placed by Hildebrand himself, not his wife as she has claimed. The banker, according to Weltwoche, is aware that he or she is breaking Swiss banking secrecy law in making the claim. A bank employee, but it is not clear if it is this banker or the one who turned himself into Zurich police 1 January for breaking data privacy laws, is reportedly by Weltwoche to be pressing charges against Hildebrand for breaking currency laws covering insider trading.
AP, which is widely picked up by American newspapers, ran a major story Wednesday based on Weltwoche’s article.
ZURICH, SWITZERLAND – Swiss National Bank President Philipp Hildebrand is getting heat from Swiss media over the profitable sale of dollars by his wife Kashya Hildebrand in October. It’s unclear who the source is for the figures, but both NZZ and Blick have reported that she made more than CHF60,000 in profit after buying and later selling $1 million.
Christophe Darbellay, president of the federal government’s Commission for Economy and Taxation, said that an internal bank council investigation has left “too many question marks”. At issue is the question of whether or not it is legal for SNB employees and their family members to make trades; the bank’s regulations are not a matter of public record.
The SNB president announced 6 September that the central bank was capping the over-valued franc, and it promptly fell against the dollar. Swiss media have been asking if the bank president’s wife was privy to inside information, which the bank’s governing council denies.
The bank has confirmed, according to Reuters, that “Kashya Hildebrand, a former currency trader who now runs an art gallery in Zurich, bought an unspecified amount of US dollars for herself and her daughter” but declared that an internal investigation turned up no wrongdoing.
Hildebrand has a good reputation in Switzerland although right-wing former UDC party leader Christoph Blocher recently criticized him strongly, and there has been media speculation that Blocher may in some way be linked to the information about Ms Hildebrand. although there appears to be no proof of this. Blocher has refused to comment on the matter.
Source: Swiss National Bank, 15 December 2011
Updated 10:20 ZURICH, SWITZERLAND – The Swiss National Bank is keeping its promise to “enforce the minimum exchange rate of CHF1.20 per euro with the utmost determination”, including buying unlimited quantities of foreign currency if necessary, it said Thursday morning 15 December in an assessment of Switzerland’s monetary policy.
“Even at the current rate, the Swiss franc is still high and should continue to weaken over time.”
Philipp Hildebrand, SNB chairman
Phillip Hildebrand, chairman of the governing board of the SNB, in his year-end talk to the press Thursday described the global outlook as “subdued” and said the SNB has adjusted its growth assumptions for the euro area substantially downwards.
“The outlook for global growth is nevertheless subdued, and has, if anything, deteriorated since the last monetary policy assessment. The most recent US economic data have been somewhat better than expected, but the escalation of the European debt crisis has clouded the economic outlook for the euro area. Bond yields for fiscally weak states have risen markedly. The growing unease among market participants is also reflected in the increased volatility on the financial markets. Mounting borrowing costs and the high level of uncertainty are contributing to a marked worsening of the business climate in the euro area.”
Hildebrand added that “uncertainty about the future outlook for the global economy remains extremely high. In particular, the European sovereign debt crisis poses grave risks for the international financial system and the real economy.”
Swiss economy affected by eurozone fragility, with falling growth rate
The SNB Thursday lowered growth expectations for the economy in 2012 to 0.5 percent and aiming to keep the three-month Libor range (official lending rate to banks) at around 0 percent. “The substantial appreciation of the Swiss franc over the summer is weighing heavily on the Swiss economy. For 2011 as a whole, real GDP growth of 1.5–2.0 percent can be expected. This is only because of the favourable economic development in the first half of the year,” the central bank notes in a statement.
Fewer jobs, less spending, housing construction slowdown
Hildebrand noted that the Swiss slowdown will have an impact on the jobless rate, which will then impact consumer spending and the rate of new home construction.
“The introduction of the minimum exchange rate has corrected the massive overvaluation of the Swiss franc and has given companies a sounder basis for their investment planning. This notwithstanding, the situation for a big part of the economy remains difficult. Waning global demand will continue to hold back export growth. Economic uncertainty, coupled with a difficult earnings situation for many companies, will curb corporate investment. Moreover, since October, the seasonally adjusted unemployment figure has risen again slightly. The deterioration in the labour market should constrain both consumer spending and investment in residential construction.”
Home loans nevertheless remain strong, says Hildebrand, with domestic mortgages (and corporate lending) continuing “to see robust growth. In the third quarter of 2011, lending standards and conditions for mortgages remained largely unchanged. By contrast, banks reported a slight tightening of lending standards and conditions for corporate loans – especially loans to large companies. Low interest rates continue to have a favourable effect on the demand for loans. In addition, the robust growth in real estate prices, particularly prices for owner-occupied apartments, continued unabated in the third quarter.”
Inflation likely to dip into deflation briefly
The bank sees no risk of inflation in the “foreseeable future”, forecasting an inflation rate of 0.2 percent for 2011, dipping to -0.3 percent in 2012, rising to 0.4 percent in 2013. The SNB notes that “in the short term, inflation will dip into negative territory sooner, owing to the effects of the earlier currency appreciation, which have been stronger than expected. In the longer term, the worsening of the growth outlook for the euro area is dampening inflation.” The forecasts are based on assumptions about a 0 percent Libor and weakening Swiss franc, it cautions, and instability in the global financial system, particularly in the eurozone are creating an outlook that is uncertain.
Swiss central bank payouts down, with overvalued Swiss franc
ZURICH, SWITZERLAND – Swiss cantons and communes won’t be seeing their budgets boosted this year by additional monies from the Swiss central bank, and a new agreement between the federal government and the bank should remove some of the uncertainty linked to this income.
The Swiss National Bank (SNB) and the Federal Finance Department said Monday 21 November they have reached a new agreement covering how the SNB’s profits are shared, for 2011-2015. The SNB during the next five-year period will be sharing CHF1 billion annually with the 26 cantons assuming the central bank has a profit after it complies with its reserves-building obligations.
“It remains unclear when the next distribution payment will take place, since this will depend on future developments in the financial markets,” the SNB said Monday 21 November.
The bank had no profits in 2010 and appears unlikely to do so in 2011 largely because of the amount it is spending to keep the overvalued Swiss franc from rising. The new agreement is designed to provide greater medium-term stability for cantons and the federation to plan, with a set amount per year, compared to the fluctuations of the most recent five-year period.
Should the central bank’s distribution reserves exceed CHF10 billion, the amount going to the cantons and federal government will be increased, with the finance department and the SNB deciding the amount.
ZURICH / BERN, SWITZERLAND – The Swiss National Bank is showing a consolidated profit of CHF5.8 billion for the first nine months of the year, thanks primarily to gold prices. The profit was achieved despite an over-valued Swiss franc that caused losses of CHF4.7 billion.
Other currency positions resulted in gains of CHF5 billion, giving the central bank a net currency position of CHF0.3b. The over-valued Swiss franc and intervention by the SNB, particularly in August and September, were the main factors in the bank’s currency situation at the end of nine months. The bank notes that at the end of the quarter, the US dollar was trading 3.1 percent lower than at the beginning of the year, and the euro 2.8 percent lower.
The SNB’s currency investments are 55 percent in euros, 25 percent in dollars, 9 percent in the yen, 4 percent in sterling, 4 percent in Canadian dollars and 3 percent in other currencies.
The price of gold at the end of September accounted for the bulk of the profit: it was around CHF47,089 per kilo, giving the bank a valuation gain of CHF5.0 billion. But the bank noted in a statement issued Monday 31 October that “the SNB result depends largely on developments in the gold, foreign exchange and capital markets. Consequently, strong fluctuations are normal, and only provisional conclusions are possible as regards the annual result.”
UBS bailout fund loan down by CHF4b to outstanding CHF7.9b
The stability fund, created for the government’s bailout of bank UBS in 2008, contributed CHF573 million in interest payments, to the central bank’s profits. “The loan to the stabilisation fund was reduced from CHF 11.8 billion (USD 12.6 billion) to CHF 7.9 billion (USD 8.8 billion), and the total risk exposure decreased from almost CHF 14 billion to around CHF 8.7 billion.”
Swiss central bank to protect the franc with "utmost determination"
ZURICH, SWITZERLAND – The Swiss franc’s cap against the euro will be protected “with utmost determination”, the Swiss National Bank said Thursday 15 September, repeating its earlier stance that it is prepared to “buy foreign currency in unlimited quantities” to get the exchange rate of the “massively overvalued” franc back to more appropriate levels.
The SNB used its strongest language yet in describing the “acute threat to the Swiss economy and the risk of deflationary development that spring from the massive overvaluation of the Swiss franc”.
It pointed to the worsening of the economy, saying “the outlook for the advanced economies, in particular, has worsened considerably” and that the high franc coupled with softening international demand will result in GDP growth of 1.5-2.0 percent only because of growth in the first half of the year.
“Without the stabilizing effect of the minimum exchange rate there would be a substantial risk of recession”.
The Swiss Federal Council spent the day out of the office, instead holding their official meeting at the Chateau Mercier in Sierre
Update 20:00 BERN, SWITZERLAND – The Swiss franc rose yet again Wednesday 17 August, turning around after a dip at the start of the week against most major currencies. The shift comes in the wake of a Franco-German meeting that left investors lukewarm and efforts by the Swiss National Bank to reduce its strength that appear to have been viewed as not too onerous.
The currency developments were accompanied by the news late Wednesday that Switzerland could well have a 2011 budget surplus, rather than the deficit earlier predicted.
The franc finished the day in Switzerland at CHF.78 for the dollar, from a dollar high of CHF.80. The euro was trading at CHF1.1394 from a euro high of CHF1.1554 (figures, Reuters).
Tougher mortgage rules part of Swiss franc fallout
An undesirable side effect of the measures taken to rein in the Swiss franc is that banks are loaning out money for mortgages too easily, with very low interest rates, says the Federal Council. Strict rules about mortgage deposits are not being observed as much as they should, argues the council, so starting in January 2012 banks will face tougher restrictions and will be required to ask for larger deposits. The announcement was one of several linked to news of the federal surplus.
Central bank expands supply of liquidity to Swiss franc money market
The SNB announced early in the day that it was taking three steps, effective immediately, to “expand again significantly the supply of liquidity to the Swiss franc money market. In so doing, it is increasing the downward pressure on money market interest rates with a view to further weakening the Swiss franc exchange rate”:
- it aims to expand banks’ sight deposits at the SNB, from CHF 120 billion to CHF 200 billion
- to achieve this new target level as quickly as possible, it will continue to repurchase outstanding SNB bill
- for the same reason it will continue to employ foreign exchange swaps.
Budget surplus won’t have an impact on 2012 budget
The Swiss Federal Council, after a special summer session at the Chateau Mercier in Sierre Wednesday, announced that the 2011 budget is likely to have a CHF2.5 billion surplus instead of the CHF600 million deficit predicted earlier. The turnaround is due mainly to higher than forecast revenues, with companies’ profits higher than predicted in 2010 as the economic recovery proved to be stronger than expected. Government spending was also lower than predicted.
The new figures are based on accounts at the end of June 2011.
The 2012 budget was approved in May, at which point it was already clear that revenues for 2010 would be higher than expected, so the Federal Council says the new, mid-year predictions, will have no impact on the 2012 budget.
CHF2 billion industrial aid programme set up to avoid sending jobs abroad, reduce price fixing
The cabinet announced Wednesday it is setting aside CHF2 billion to rapidly boost industry, which is suffering from the role of the Swiss franc as a safe haven for foreign investors. The fund, the Federal Council acknowledges, is “large” and will be used to “strengthen industries that have been hit hard by the negative foreign exchange situation and to prevent jobs from going abroad”, including tourism.
The council will also seek a rapid change in the laws covering competition that would touch a number of price-fixing areas and it plans to provide Comco, the competition commission, with four additional posts for two years, to better enforce existing legislation.
Federal Council press release, details of the CHF2 billion industrial aid fund (Fre)
ZURICH, SWITZERLAND – The Swiss National Bank said Wednesday morning 10 August it was taking new measures against the strength of the Swiss franc, following its intervention last week, which failed to stop the flow into the currency as a haven.It is not ruling out further action.
“The SNB aims to rapidly expand banks’ sight deposits at the SNB from currently CHF80 billion to CHF120 billion,” it says, to “accelerate the increase in Swiss franc liquidity” and the central bank will begin foreign exchange swap transactions, a monetary policy it last used autumn 2008.
The SNB cited, in a statement, the “massive overvaluation of the Swiss franc” which is says “poses a threat to the development of the economy in Switzerland and has further increased the downside risks to price stability.”
Swiss cabinet called in Hildebrand, central bank president, for special briefing
BERN, SWITZERLAND – The Swiss Federal Council says it is closely watching the record high Swiss franc situation, studying options and is ready to act if necessary, but it cautions against knee-jerk reactions that provide only short-term solutions. It issued a cautious statement Tuesday morning 9 August about the extraordinary meeting held by the governing group of seven Monday to review options in the face of market turmoil and investors pushing up the Swiss franc as a safe haven.
The group threw its support behind SNB (Swiss National Bank) President Philipp Hildebrand’s intervention in money markets last week and his promise to do more if the franc remains too high.
“It believes, as does the SNB, that the Swiss franc is clearly overvalued and that an energetic intervention is needed on the monetary policy front”, the Council said in the statement.
“We believe today that economic activity will slow down substantially in the quarters to come. The Federal Council is closely watching developments. It estimates that Switzerland’s position remains stronger than that of most of its neighbours but it is nevertheless aware of the need to watch the situation closely.”
China, Russia and India free trade deals are a focus
The Council noted a number of steps that have been taken since the start of 2011 to cushion the economy and business, noting in particular that it is keen to complete negotiations for free trade agreements with China, India and Russia before the end of 2012.
ZURICH, SWITZERLAND – The Swiss National Bank’s (SNB) half-year report issued Friday is hardly cheering news at the start of a long national holiday weekend, with an interim consolidated loss of CHF10.8 billion francs thanks to the strength of the Swiss franc against major currencies, before allocation to reserves. “The SNB result depends largely on developments in the gold, foreign exchange and capital markets. Consequently, strong fluctuations are normal, and only provisional conclusions are possible as regards the annual result,” the central bank says in a statement.
The SNB in 2010 showed a loss of CHF19.17b in 2010 and a profit of CHF9.96b in 2009.
Foreign currency position losses were some CHF9.9 billion, January to June, due mainly to exchange rate-related valuation losses of around
CHF 11.7 billion. The US dollar depreciated by 9.6 percent, the yen by 8.9 percent and the euro by 2.4 percent, according to the bank, and while there were some currency gains, they were not enough to offset these losses.
The gold price per kg at mid-year was about CHF40,800, resulting in a valuation loss of CHF 1.6 billion. The SNB’s gold holdings were unchanged, but they suffered a valuation loss of CHF1.6 billion: “Although the dollar price per fine ounce rose compared to the end-year
value, the price per kilogram fell from CHF42,289 to CHF40,799 as a result of the weaker USD exchange rate,” the SNB notes.
UBS stabilization fund reduced
The SNB loan to the stabilization fund that was created in late 2008 to bail out the country’s largest bank, UBS, was reduced from CHF11.8b
($12.6b) to CHF8.0 billion ($9.4b), during the first six months. “The total risk decreased from almost CHF14b to around CHF10b, the SNB reports, with the fund showing a half-yearly profit of $1.334b, representing a contribution of CHF 697 million to the consolidated result.”
Reserves to be allocated at the end of the year
Switzerland’s reserves are 25 percent in dollars, 55 percent in euros, 3 percent in GB sterling, 10 percent in the Japanese yen, 4 percent in Canadian dollars, with 3 percent “other”. By law, the SNB must set aside provisions to “maintain the currency reserves at the level necessary
for monetary policy”; the allocation will be made towards the end of the year.
BERN, SWITZERLAND – The finance commission of the Swiss parliament’s lower house has given its approval to new rules that would require Switzerland’s two largest banks, UBS and Credit Suisse, to increase their capital bases substantially above the amount required by Basel III global requirements.
Basel III rules were established by the Basel Committee on Banking Supervision and have been the subject of heated international debate in recent months.
The change in Swiss banking law, proposed to parliament by the governing Federal Council (cabinet), went through an upper house commission Monday.
It will now be debated in both houses this summer and, if approved, could be implemented starting in 2012, with a six-year period to gradually implement it.
The Swiss National Bank has thrown its support behind the tough new Swiss law, which was written after the government’s 2008 bailout of UBS during the global financial crisis.
SNB profit, a tale of currency movements
Zurich, Switzerland (GenevaLunch) – A net profit of CHF1.9 billion for the first three months of 2011 at The Swiss National Bank was due largely to currency fluctuations, the central bank said Friday 29 April. The net result from foreign currency positions was CHF1.6 billion, while losses from Swiss franc holdings were CHF106 million.
Euro appreciation led to exchange rate gains
The bank says that the Swiss franc depreciated against European currencies from January to 31 March, ” leading to exchange rate gains, especially on euro holdings. A depreciation in the US dollar and the yen, however, meant that the overall exchange rate gain amounted to CHF 2.4 billion. A slight rise in interest rates depressed prices of interest-bearing instruments by CHF 2.9 billion. Interest income on these securities of CHF 1.4 billion and price gains on equity securities of CHF 0.6 billion were not sufficient to offset the fall in prices.”
Gold contributed little, UBS loan repayments reduce risk
This one is made of chocolate but real shoes cost more in March, as new models replaced February sale items
Zurich, Switzerland (GenevaLunch) – Swiss consumer prices rose 0.6 percent in March 2011, according to the latest CPI (consumer price index) figures released Wednesday 6 April by the Federal Statistics Office. Year-on-year inflation was 1.0 percent.
The annualized rate in February was 0.5 percent.
The main contributors to the rise in inflation were petrol prices, up 4.9 percent and new clothes and shoes hitting the stores after the sales, with an 8.5 percent increase in prices compared to February.
The Swiss franc continues to remain high against other major currencies, but according to Swiss National Bank (SNB) board member Jean-Pierre Danthine, interviewed by Basler-Zeitung shortly before the latest inflation figures were published, the Swiss economy is largely immune to the currency situation, with the very low interest rates providing domestic benefits. The European Central Bank will announce 7 April if it is raising interest rates and the SNB says it is closely watching international developments, one of the greatest risk factors for the Swiss economy.
Related stories: Reuters, preface to the 2010 Annual Report of the SNB, published 7 April 2011
Switzerland: IMF checks economic winds in 2011
Bern, Switzerland (GenevaLunch) - The IMF (International Monetary Fund) in its annual country report on Switzerland says the economy is broad-based in the aftermath of the global economic crisis. It is forecasting 2.1 percent growth for 2011 and 1.8 percent in 2012, when it expects exports to fall.
“Domestic demand is benefiting from low interest rates, increased employment and continuing immigration. In spite of the strength of the Swiss franc, exports have grown due to increased global demand.” Geopolitical tensions could have a negative impact and are the biggest risk factor, agreed the IMF team, who visited Switzerland from 18 to 28 March. Tensions in the euro zone could also spark difficulties.
The SNB (Swiss National Bank) could consider tightening monetary policy, the IMF group says, with rebuilding its capital a priority. The central bank’s capital was drained during the crisis, as were those of many governments. Future dividends to the cantons and the Confederation should be made subject to the ability of the SNB to replenish its capital.
The heaviest criticism was reserved for the banking regulatory system, which needs further work, according to the IMF. The Federal Department of Finance will create a working group to follow up one issue: the mandates of the SNB and Finma, the financial supervisory body, should be clarified, according to the IMF.
Additional capital requirements provided for in the Federal Council’s “too big to fail” consultation draft will be instrumental in limiting the risks posed by systemically important banks. Consequently, the IMF experts warn against allowing overly generous “rebate” possibilities. Switzerland’s new capital requirements are among the most stringent in the world, going well beyond bank capital requirements that are part of the new, global BIS (Bank for International Settlements) Basel agreement.
In the mortgage market, the IMF sees a certain degree of easing in financial institutions’ lending standards, says Bern. “The interest-rate sensitivity of banks’ balance sheets has increased due to the tendency towards fixed-rate mortgages with long maturities” and the IMF is in favour of “implementing more conservative affordability standards”, which could be bad news for new home owner wannabes.
The IMF has given its support to several ongoing improvements:
- “The neutral fiscal position to be expected over the next few years is considered appropriate” says Bern’s statement on the IMF visit
- the measures to restructure disability insurance must continue
- the IMF welcomes the ongoing efforts to strengthen financial planning and statistics.
Philipp Hildebrand, president, Swiss National Bank
Bern, Switzerland (GenevaLunch) - The case of Switzerland will give economists material to mull over, with Swiss exports showing a surprising leap in February, increasing by 10 percent. The machine industry and electronics led the way, with 20 percent growth.
Imports grew, but more “timidly” says the federal government.
Switzerland now shows a positive trade balance of CHF2.5 billion, double what it was a year earlier, and this despite concerns about the strong franc in recent months.
Philipp Hildebrand, Swiss National Bank (SNB) president, speaking to a group of journalists in Geneva Tuesday noon qualified Swiss exports as “remarkably resilient” but he warned that the Swiss economy will eventually see growth slow down as a result of the impact of the Swiss franc. The SNB 17 March revised upwards to 2 percent its forecast for growth of the Swiss economy in 2011, cautioning at the time that growth will slow down by 2012 due in part to the strong franc.
Hildebrand points to three risk areas for the Swiss economy: the high Swiss franc, the uncertain situation in the Middle East and the problems created by the earthquake and tsunami in Japan.
Bloomberg reports Tuesday that the Swiss franc “gained 12 percent over the last year versus the euro, the currency of its main trading partner, eroding exporters’ competitiveness. Against the dollar, it reached a record 88.52 centimes per dollar on March 17.”
Dollar weakens against the Swiss franc
The Swiss franc reached another historic high against the US dollar in trading Tuesday, 15 March, as the dollar slipped below CHF0.92.
The Japanese yen also traded close to historic highs as Japanese firms appear to be bringing finance back to Japan to help firms deal with the problems caused by the massive earthquake and tsunami.
The Swiss franc benefited from its traditional role as a safe have in times of uncertainty and from the sound economic performance of the Swiss economy.
Switzerland has low inflation, a current account surplus, a balanced budget and comparatively low national debt.
The Swiss National Bank announces its interest rate policy Thursday 17 March and analysts are expecting rates to be kept near zero.
SNB cash distribution will be concentrated in Bern and Zurich
Geneva, Switzerland (GenevaLunch) – The Swiss National Bank will close its Geneva money-distribution operation at the end of January 2012, the central bank announced Wednesday 2 March, to concentrate the service in Bern and Zurich. The SNB also works with 13 agencies operated by cantonal banks to ensure an adequate supply of coins and bills in Switzerland.
The volume in Geneva is not great enough for the system to operate efficiently, the SNB says.
Fifteen employees will be affected but the bank hopes to avoid redundancies through early retirement or internal re-assignment.
The SNB will continue to maintain a presence in Geneva with its delegate for regional economic relations.
Bern, Switzerland (GenevaLunch) – Switzerland’s financial system managers have set up a financial crisis unit: the federal finance ministry, the central bank and the bank supervisory body Finma have signed an MOU (memorandum of understanding) in line with a 2010 directive from the government in the wake of the global financial crisis.
The steering committee for the unit will meet at least once a year to create a set of crisis management tools and “as often as necessary” in the event of a crisis. The new committee will be relatively autonomous, with the head of the Federal Department of Finance responsible for deciding on the timing of informing the full seven-member ruling Federal Council of the need to take measures, but he or she must inform them immediately when “risk assessment reveals the likelihood of exceptional measures having to be taken by the authorities”.
Losses in future years could touch shareholder gov’ts budgets
The SNB has head offices in Bern, shown, and Zurich
Update 11:45 Zurich, Switzerland (GenevaLunch) – The Swiss National Bank (SNB) is likely to post a CHF21 billion loss for 2010 as the result of exchange rate losses of CHF26m, it announced Friday.
But the federal government and cantons will receive their expected share of profits and dividends so their planned budgets will not have to be cut.
The SNB loss was softened by a CHF6b gain in the value of gold holdings. The central bank in 2009 has a profit of CHF10b. The bank notes that “despite the reduced allocation to the provisions for currency reserves, the SNB’s capital base continues to be robust, also by comparison with other central banks.”
The bank builds long-term equity capital by allocating money every year to the provisions for currency reserves.”The events of the past year have highlighted the fact that an adequate capital cushion is paramount for monetary policy independence. The SNB will therefore continue to pursue its long-term strategy of increasing its equity capital on an annual basis by means of allocations to the provisions for currency reserves.”
Swiss current account surplus rises to CHF21b, while franc reaches record against euro
Q3 2010 Swiss Balance of Payments: SNB
Zurich, Switzerland (GenevaLunch) – Switzerland finds itself, as 2010 draws to a close, in the unusual position of having a growing current account surplus that stands at CHF21 billion for the third quarter while the Swiss franc reaches a record against both the euro and the dollar.
The current account shows an increase of CHF6 billion in receipts from direct investments outside the country, but trade in goods and services contracted by CHF1b, leaving the current account surplus at CHF5b higher. The Swiss franc’s rise would normally be expected to put a stronger dent in the balance of trade.
Safe haven franc hits record highs against dollar, euro
The Wall Street Journal reports Thursday early afternoon that “the euro fell below 1.24 Swiss francs for the first time, while the dollar and the pound both printed new record lows against the safe-haven currency of 0.9371 francs and 1.4550 francs, respectively.”
The exchange rates are generally somewhat exaggerated at year-end by light trading, which emphasizes movements, and this year the overall weakness of the dollar is a special factor, but during 2010 the franc has appreciated 9 percent against the dollar and 18 percent against the euro.
