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Guest Post: Inside Job At The SNB?

Tyler Durden's picture




 

Submitted by Alexander Gloy of Lighthouse Investment Management

Inside Job At The SNB?

The official version:

  • “Enormously dedicated” SNB chairman Philipp Hildebrand purchases 500,000 USD days before he devalues the Swiss Franc by 10%.
  • This plain-vanilla spot currency transaction becomes “water cooler” story at Bank Sarasin (which wouldn’t even open accounts below 1 million minimum deposit).
  • An IT employee takes pictures of incriminating documents, briefly weighs the consequences of breaking Swiss banking secrecy, deems the latter porous as Swiss cheese, find it his patriotic duty to “turn in” the SNB chairman. However, to his surprise, breaking banking secrecy is still frowned at by the Swiss people. The misunderstood Robin Hood contemplates suicide and enters a mental institution.
  • Hildebrand, after initially fronting his wife to sort out the mess, retro-actively donates 75,000 front-running profit from the transaction that was meant to finance his wife’s art gallery.
  • In an ultimate act of heroism, Hildebrand decides to step down despite earlier assurances to the contrary.
  • In a teary-eyed statement, the SNB’s surviving members decry the “loss of an outstanding central banker” (probably referring to his entry in the Guinness Book of Records for greatest amount ever lost with FX interventions over 18 months – CHF 29bn or 6% of GDP). In the heat of the moment, mention of any regrets about Hildebrand’s departure gets sidelined.
  • Thomas Jordan, the vice-chairman, takes over the wheel. He continues Hildebrand’s franc-not-too-fort-policy (keeping peg-attacks at bay by regularly threatening to destroy the country’s currency by printing unlimited amounts).
  • A trainee continues to watch the EUR/CHF rate in overnight trading and sells the occasional Swiss Franc or two.

The alternative version:

  • Members of the SNB council realize Hildebrand blew CHF 29bn so his daughter wouldn’t discover daddy (despite having been groomed at hedge fund Moore Capital) sucks at FX trading and created losses in her account.
  • September 6, 2011. After wing man “negative equity doesn’t matter”-Jordan makes sure they won’t be sent to prison for this, crazy Phil goes nuclear and threatens to buy every Euro coming his way. Which he does; with 19 trading days remaining in the third quarter, the SNB expands its FX holdings from CHF 197bn to 305bn (goes on shopping spree for 46bn Euros and throws in 54bn worth of Dollars for good measure):

  • Toward the end of 2011, PriceWaterhouseCoopers asks how the SNB’s contingency plans for a Euro break-up are doing and if they had a garbage dump large enough to accommodate their CHF 150bn worth of Euros.
  • PWC also wonders what happened to all the naked puts and volatility forwards the SNB was reportedly selling according to a Reuters report on September 8, citing “about 10 option traders at major banks in Asia and Europe” (source). Because the SNB balance sheet per November 30 simply shows a sea of dashes:

  • On the other side of those “invisible” (read: off balance sheet) derivative trades are, of course, former colleagues and friends from the hedge fund world.
  • A couple of SNB council members realize the scope of the looming disaster. They decide Hildebrand must go.
  • The SNB is now ripe to be plundered. Time for Hildebrand to hit the eject button before the keg – excuse me, peg, explodes.
  • Thanks to an endless supply of Euros courtesy of the ECB, hedge funds using 100 times leverage fill every SNB bid. The ensuing inflation of the Swiss monetary base destabilizes the country; the entire SNB council is fired.
  • The peg breaks, the Swiss Franc surges 20%, leading to combined currency losses of more than 10% of GDP. Switzerland makes a beeline for help from the IMF.

Which story-line is more realistic?

The Swiss had a rough couple of years; first the national airline crashes, then the banking secret, and, now, their central bank. It seems someone from inside the SNB finally woke up and skilfully played the Swiss media to work on Hildebrand’s expulsion.

There is only one problem for the SNB: how to get out of the hole before the Euro blows up?

The sharks are already circling their prey; the Swiss Franc decoupled from the Euro the moment SNB chairman Hildebrand resigned:

The exchange rate got dangerously close to the “Rubicon” of 1.20 (the level the SNB vows to defend with utmost determination). The SNB is basically 100 pips away from extinction.

 

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Tue, 01/10/2012 - 19:16 | 2052122 Sudden Debt
Sudden Debt's picture

The man wasn't a team player. That's it.
Once you go bilderberg you stay bilderberg.
You don't go against their policies.
And as they employ all the central bnkers, they have every right to sack them.

Tue, 01/10/2012 - 19:43 | 2052220 Atomizer
Atomizer's picture

Sudden Debt, I'll take R. Budd Dwyer for $1,000. Colonel Mikolaj Przybyl happened to fail by epic proportions. 

Tue, 01/10/2012 - 19:22 | 2052136 Zola
Zola's picture

THe million dollar question now is do you pull a Soros and attack the peg or not...

Tue, 01/10/2012 - 21:02 | 2052530 Quinvarius
Quinvarius's picture

Soros didn't attack anything.  He had information, political contacts, and bribe money.  He knew in advance the pound was going to be devalued.  It was all insider info. 

Wed, 01/11/2012 - 03:10 | 2053629 malek
malek's picture

Soros attacked the BOE trying to keep the Pound higher in value.

The SNB is trying to keep their Franc lower in value. In this case the SNB has unlimited resources to do so - at least until the Swiss citizens revolt...

Tue, 01/10/2012 - 19:28 | 2052155 Quintus
Quintus's picture

And still nobody investigates the $50 raid on Gold minutes before the SNB peg announcement.  

It wasn't just Mme. Hildebrand that was frontrunning the SNB that day...

Tue, 01/10/2012 - 22:23 | 2052842 ShoeShineBoy
ShoeShineBoy's picture

Totally agree..

TYLER -- I am shocked that you did NOT catch the most important part of this news. If you checktoday's FT, you will notice in the article that the wifey mentions to her husby "let's don't forget to BUY PUT OPTIONS on GOLD whenthe time comes".. 

you must bring this article to the forefront and investigate it, knowing this correspondence happened in mid-August when the gold was making one after another all time highs, and that overnight gold dumping in asia to bring prices to 1800, if you recall, i think this is a groundbreaking news to investigate for you.

Tue, 01/10/2012 - 19:40 | 2052209 jimmyjames
jimmyjames's picture

The peg breaks, the Swiss Franc surges 20%, leading to combined currency losses of more than 10% of GDP.

***********

Swiss banks have made loans into the east Euro countries that total 25% of Swiss GDP and 70% of Swiss GDP is derived from banking institutions-

I wonder how much of that debt will be paid back-especially if the EUR breaks lower-it did hit 1-1 prior to the intervention/peg-

Tue, 01/10/2012 - 20:01 | 2052307 disabledvet
disabledvet's picture

this is a great point and gives lie to all the conspriatorial clap-trap by numb nuts here. OF COURSE IT WAS AN INSDIDE JOB. THE GOVERNMENT OF SWITZERLAND OUSTED HIM FOR STEALING MONEY AND TRYING TO HIDE IT. Now obviously a debt of gratitude is owed to one "Zero Hedge correspondent"--our very own Bruce K! (Of course no mention by said clown phuck who wrote said moronic hit piece.) As such Bruce...I! DISABLED VET! Award YOU the COMPLETELY UNOFFICIAL...ZERO HEDGE...SCOOBBY DOO AWARD!!!:
http://www.youtube.com/watch?v=0_C2HJvtRDY&feature=player_detailpage
That's right...this particular TD prefers LYING SACKS OF SHIT. In the meantime...the Swiss Government...by order of Swiss President Baron Von Sound Money of Mucho Dinero is apparently considering giving our very own B.K. a prized "Order of Canton" medal for his defense of Swiss Democracy through Honest Finance!

Tue, 01/10/2012 - 20:03 | 2052316 AvoidingTaxation
AvoidingTaxation's picture

70% of Swiss GDP is derived from banking institutions

 

I call a Bullshit

Tue, 01/10/2012 - 21:02 | 2052391 jimmyjames
jimmyjames's picture

I call a Bullshit

***********

I suppose i should have said Banking and Financial institutions?

******************

 The Swiss service sector is the most vital component of Switzerland’s economic structure, accounting for approximately 70% of the nation’s GDP. Finance and banking services are the main component of the service sector

http://www.economywatch.com/world_economy/switzerland/structure-of-econo...

 

http://bit.ly/xxQqQH

Tue, 01/10/2012 - 21:12 | 2052561 disabledvet
disabledvet's picture

so if the guy at the top is not only stealing but doing so in a way desigend to hide it ("why such a small amount of money?") and this..."industry" is absolutely critical to your country's survival...well then that guy's gotta go! yes, yes?

Tue, 01/10/2012 - 23:19 | 2053090 jimmyjames
jimmyjames's picture

Yes he needs to go-

Will his replacement work for the betterment of the country or for the banking systems survival--

Wed, 01/11/2012 - 03:13 | 2053630 malek
malek's picture

> 70% of Swiss GDP is derived from banking institutions

As far as I know the number is more like 30-40%, at times when banks are doing well. Link?

 

Tue, 01/10/2012 - 20:42 | 2052467 kato
kato's picture

Thanks ZH.

Tue, 01/10/2012 - 21:00 | 2052525 Freebird
Freebird's picture

Fkg beautiful 7crew

Tue, 01/10/2012 - 21:11 | 2052558 Stax Edwards
Stax Edwards's picture

Good stuff right here TD

Tue, 01/10/2012 - 21:20 | 2052589 ShoeShineBoy
ShoeShineBoy's picture

 TYLER -- I am shocked that you did NOT catch the most important part of this news. If you checktoday's FT, you will notice in the article that the wifey mentions to her husby "let's don't forget to BUY PUT OPTIONS on GOLD whenthe time comes".. 

you must bring this article to the forefront and investigate it, knowing this correspondence happened in mid-August when the gold was making one after another all time highs, and that overnight gold dumping in asia to bring prices to 1800, if you recall, i think this is a groundbreaking news to investigate for you.

 

Wed, 01/11/2012 - 03:20 | 2053637 the tower
the tower's picture

Euro won't blow up, negative interest on Swiss Franc accounts, Pound and Dollar collapse, Europe focuses on Asia, business as usual.

Wed, 01/11/2012 - 06:42 | 2053763 fredquimby
fredquimby's picture

I think the SNB euro purchases were just BTFD

Wed, 01/11/2012 - 11:21 | 2054428 StychoKiller
StychoKiller's picture

"We skipped the light fandango.

Turned cartwheels across the floor.

I was feeling kind of seasick,

the crowd called out for more!

The room was humming harder,

as the ceiling flew away.

When we called out for another drink,

the waiter brought a tray."

Is the CHF flying away, or is the Euro sinking like a rock?

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