BLBG:Currency Test Looms for Interim Swiss Central Bank Chief
Thomas Jordan’s first test as interim president of Switzerland’s central bank will be to prove he can defend the four-month old cap on the franc as well as its chief architect did.
As Jordan, 48, emerges as the frontrunner to replace Philipp Hildebrand on a permanent basis, he faces the challenge of showing investors a change in personality at the top doesn’t signal a shift in the Swiss National Bank (SNBN)’s foreign-exchange policy. Hildebrand resigned yesterday after failing to quell a furor over currency trading by his wife, leaving Jordan as guardian of the franc before a permanent successor is chosen.
“He looks like the most likely candidate,” Ankita Dudani, a foreign-currency strategist at Royal Bank of Scotland Group Plc in London, said in a telephone interview. “He’s got the confidence of the markets already.”
Whoever wins the race to lead the SNB will inherit a 105 year-old institution which has pledged to devote unlimited funds to prevent gains in the franc after paring its benchmark interest rate to zero. The task faced by Hildebrand’s successor may be burdened with internal change as the central bank revisits ethics rules to avoid a repeat of the controversy.
The SNB Bank Council, the central bank’s supervisory board, will hold an extraordinary meeting in Zurich today. A successor will be named as soon as possible, Hansueli Raggenbass, head of the council, said in an interview. While the council will suggest a candidate to the board, it’s up to the government to decide on an appointment.
‘Utmost Determination’
The Swiss currency surged to the highest since September against the euro after Hildebrand’s announcement. It pared gains after the SNB said it remains ready to defend the franc cap of 1.20 versus the euro with the “utmost determination,” a stance repeated later by Jordan. The franc traded at 1.2116 versus the euro at 8:19 a.m. in Zurich today, little changed on the day. It was at 94.77 centimes versus the dollar.
“The knee-jerk reaction from the market is to buy francs,” said Elizabeth Gregory, a market strategist at Swissquote Bank SA in Geneva. “Even without Hildebrand spearheading the campaign against the franc appreciation, the SNB is likely to defend the 1.20 floor vigorously.”
Jordan Thesis
Unlike Hildebrand, whose career took him from hedge fund roles in London and New York to Swiss private banks, Jordan has a largely academic background with three years spent at Harvard University in the 1990s. The native of Biel in Switzerland’s French-speaking part studied economics and business studies at the University of Bern and achieved a doctorate in 1993.
Jordan’s thesis, published in 1994, focused on the advantages and disadvantages of the European currency union, Tages-Anzeiger newspaper reported.
After completing his post-doctoral research at the Department of Economics at Harvard, he joined the Zurich-based central bank in 1997 as a head of the Economic Studies unit. A year later, he was appointed lecturer at the University of Bern. Between 2002 and 2007, he taught monetary policy at the University of Zurich and was appointed honorary professor at the University in Bern in 2003. In 2007, Jordan was appointed SNB board member before becoming vice chairman three years later.
SNB ‘Maverick’
Hildebrand’s departure from the SNB’s three-member board deprives Switzerland of a policy maker who managed to stem the franc’s rally, which threatened to push the economy into a renewed recession. The currency, which is considered a haven in times of turmoil, has remained above 1.20 after the SNB imposed its ceiling. The currency had reached a record of 1.0075 against the euro on Aug. 9.
“Hildebrand was known as a bit of a maverick, bolder and willing to take risks when it comes to policy decisions,” said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The markets will assume that whoever replaces Hildebrand will keep the cap in place because the floor has been very successful.”
Still, it was Jordan who told Tages-Anzeiger newspaper in August that a temporary franc peg would be consistent with the SNB’s mandate, paving the way for the bank’s biggest policy shift since the 1970s, when it capped the currency at 1.20. The SNB, which on Dec. 15 maintained its ceiling and held borrowing costs at zero, will hold its next quarterly assessment in March.
Franc Ceiling
Julien Manceaux, an economist at ING Group in Brussels, said the franc cap “is here to stay, with or without” Hildebrand. Alexander Koch, an economist at UniCredit Group in Munich, called Jordan a “qualified candidate” for the top job.
“You want someone with a lot of determination, so in some sense it’s particularly unfortunate because Hildebrand was very personally involved and associated with the policy,” said Steven Bell, chief economist at hedge fund GLC Ltd. in London. “In a sense, it has cleared the air. They’ve said that we’ve lost our leader, but the fight is unchanged.”
Pressure on Hildebrand to resign increased after media reported his family may have used insider knowledge to its advantage. While the government said it still supports the SNB head and an internal investigation cleared him of wrongdoing, the purchase of $504,000 by his wife in August, three weeks before the SNB imposed the currency cap, was found “sensitive.”
Hildebrand, 48, said at a briefing in Bern yesterday that he came “to the conclusion that it’s not possible” to deliver proof that his wife requested the currency transaction without his knowledge, calling credibility “the most important asset of a central banker.”
‘Excellent Reputation’
“Hildebrand had an excellent reputation in the markets, markets will miss him,” Steven Saywell, head of foreign- exchange strategy for Europe at BNP Paribas SA in London, told Bloomberg Television in an interview today. “Clearly it was a conflict of interest. Ultimately it comes down to credibility.”
Hildebrand is not the first European central banker to leave before the end of their term in the past year. Germany’s Bundesbank President Axel Weber and European Central Bank Executive Board member Juergen Stark, both from Germany, quit over the ECB’s bond-buying program, while Italy’s Lorenzo Bini Smaghi also left the board prematurely.
While Michael Saunders, chief European economist at Citigroup Inc. in London, wrote in an e-mailed note that the new SNB head will likely continue to face calls for a higher franc cap as the economy cools, Jan Amrit Poser, chief economist at Bank Sarasin (BSAN) in Zurich, said it would be “hazardous” to raise the ceiling anytime soon.
“For Jordan, the most important thing is continuity,” said Poser, chief economist at Bank Sarasin in Zurich. “The biggest mistake they could make is to change the policy completely. The message they really want to show is business as usual.”
To contact the reporters on this story: Simone Meier in Zurich at smeier@bloomberg.net; Klaus Wille in Zurich at kwille@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
