SocGen On Hildebrand Departure Next Steps: "Will SNB Have To Make A Move?"

Tyler Durden's picture

As many have been suspecting all along, the political game involving the ouster of now former SNB president Philipp Hildebrand has been nothing more than a game of "pin the tail on the scapegoat" for bad monetary policy by the SNB, read the EURCHF 1.20 peg. In other words, it is quite likely that alongside the burgeoning SNB balance sheet, the bank had also accumulated quite a few losses, which the Swiss public will not be too happy with, and a change at the top was required. So what happens next: will the SNB relent and allow the peg to expire as the scramble for a (now much more diluted) CHF resumes ahead of the European D-Day in March, or will the peg be forced to be pushed even higher, at the expense of even greater balance sheet losses? Here is what SocGen thinks will be the next steps.

EUR/CHF: will the SNB have to make a move?


The EUR/CHF has been weakening steadily over the past month and is now back at the low end of the 1.2125-1.2475 range, which is within the level since mid-September and the last limit before the 1.2000 floor implemented by the SNB on 6 September.


Upside pressure on the CHF has underpinned the stressful climate in the eurozone, despite the control system set up by the SNB and reduced global risk aversion mainly attributable to better US figures. The markets are waiting for the implementation of the measures agreed on at the end  of last year (Merkel-Sarkozy meeting today); the situation in Greece is still a big concern (EUR15bn reimbursement on 20 March and discussions under way with the Troika); the budget outlook remains fragile overall (impact expected from the potential recession); and sovereign spreads  remain stretched (notably for Italy at 520bp).


The initial reaction following Hildebrand resignation today was almost limited above 1.2125 even if the global tone for the CHF remains solid. A drop through the 1.2125 zone would open the door to the 1.2000 level. This threat would then force the SNB to react via market intervention. The Central Bank said today it will defend the 1.20 level with “utmost determination”.


At the end of the day, the likelihood of raising this floor is expected to grow as deflationary pressure increasingly threatens the Swiss economy. Global CPI has reached -0.7% yoy and core CPI is collapsing towards a historical level of -1.1% yoy (whereas the situation is stabilising in the  eurozone). At the same time, manufacturing production is down for the first time since June 2009 (-4.3% yoy). In the highly uncertain economic environment with specific deflationary risks for Switzerland, and given the current evolution of spot rates, authorities are very likely to have to  contend with raising the floor to over 1.20 in the short term.

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balz's picture

Switzerland used to be a free country.

lizzy36's picture

Freedoms just another word for nothing left to lose.

redpill's picture

And nothin' don't mean nothin' honey if it ain't free, now now.
And feeling good was easy enough, Lord, when he pegged the franc,
You know feeling good was good enough for me,
Good enough for me and my Philipp Hildee.

bernorange's picture

Some live blogging from the press conference this morning:

Reporter says he did it to avert a testimony before parliament.   (it = resign)

Hildebrand says he is going to testify before parliament anyway.

Says very challenging times ahead, wants to maintain credibility of the SNB.
"Not sure we can continue to defend the Swiss economy" (paraphrasing)

Urban Redneck's picture

Switzerland is still vastly more free than most.  However given its small size vs the the large forces seeking to use its economy for their own personal gain, or as lever in the EUR collapse game, the only practical defense is a strong and unconventional offense, which was hampered by domestic poltical squabbles and poor domestic decisions within the household of the SNB chief.


When can we expect Bernanke to step up and do the honorable thing (regardless of whether the reason is righteous or political)?

redpill's picture

"When can we expect Bernanke to step up and do the honorable thing?"


You mean resign?

Urban Redneck's picture

Resign, confess, suicide himself ... anything other than destroy the US economy and its citizens' wealth in order to prop up his bank shareholders and ensure their continued profits.

Ghordius's picture

"destroy the US economy"?? It's not only the US economy. Everything in the first world is based on the USD. The dirty laundry that is magically appearing mostly in the EU is being "scooped" for a reason: save King Dollar.

Miss Expectations's picture

Hey, what's Mrs. Bernanke been up to?

redpill's picture

That's the sound of QEasing in the morning.  Desperate dry heaves until a giant ball of half-digested fiat plops out onto the market.

malek's picture

You should read a little more about other times the Swiss currency became a safe haven, and therefore strengthened a bit too much for their populace.

Did they then choose outright devaluation for everyone, including their own citizens? No.

But this time Hildebrandt and/or his puppetmasters went the easy way, to satisfy the large corporations - and the sheeple applauded although it were their savings taking the biggest hit without compensation. One day that is going to haunt them, as in an inverted scenario the SNB cannot limitless defend the CHF so it remains strong.

Urban Redneck's picture

Once they chose the path they chose, the previous alternatives ceased to be alternatives.  Regardless of how much I detest printing, the question is where to from this point?  Abandonning the path and admitting defeat nukes both the Swiss and European financial systems and then economies- The risk may be very un-Swiss but there are exit paths, even profitable ones.  Since it was very un-Swiss to let the two behemouths merge their way out of control, and very un-Swiss to simultaneously let huge volumes of FX risk build up on cross-border loans, when this sort of thing has happened before... At this point the dinosaurs have failed, and the wunderkinds have failed- so  someone needs to write a new playhbook.    

King_of_simpletons's picture

Foreclosure front:!#/headlines/195725

US close to pilot program on foreclosure issue according to CNBC

The Obama Administration, in conjunction with federal regulators and led by the overseer of Fannie Mae and Freddie Mac, are very close to announcing a pilot program to sell government-owned foreclosures in bulk to investors as rentals, according to administration officials.

There are currently about a quarter of a million foreclosed properties on the books of Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) and millions more are coming.




swissaustrian's picture

BS, SNB is already intervening.

ACP's picture

Of course, Madman Bernanke will use any opportunity to expand the Fed balance sheet. One more entity to lend to.

onebir's picture

Am I right in thinking that even with zero nominal interest rates, Switzerland is the country in the world with +ve real interest rates? And if CHF strengthens, their deflation rate will get 'worse', pushing up real rates further, and attracting in momentum traders at the same time. Not to mention CHF is a destination of choice for capital flight from EUR.

SNB seems to have set itself up for nicely for a "Black Wednesday" & if anyone there has two brain cells to rub together, they'll be quietly crapping their pants. :)

(Translation: "long CHF bitchez")

Plainview's picture

"Am I right in thinking"


No. You're not right.

"If the swiss franc strengthens" is the prerequistie to your example but for that to happen then the floor must -by definition- have failed so obviously the CHF would storm higher. But why would the floor fail? Citing the "Black Wednesday" example only reveals your misunderstanding of the issue; the Bank Of England failed to hold their floor because they were trying to keep Sterling strong - or to put it in the more pertinent way: the Bank Of England were trying to weaken the Deutsch Mark, obviously a currency they could not print, so they eventually, and inevitably, failed. The SNB is the opposite side of that coin and in fact the failure of the BoE is actually a logical reassurance to the theory that the SNB can hold the "weakening" biased floor ad-infinitum. 

When you next rub those two brain cells together, consider what would happen if the SNB announced tomorrow that the floor is now 1.35 ... and that there is no stopping them from doing so. (Translation: "everybody long CHF bitzhez, is now dead."

steve from virginia's picture


Anyone would know that something like this was/is in the cards. Swiss is pegged to what, exactly? At some point the euro vanishes then the franc has to be revalued against both 'new' currencies  and the almighty dollar. Sorry Swiss, you have a hard currency, you're stuck with it.

The agonizing question is whether Switzerland jumps out of the euro-Titanic now or do they wait? This is what is behind the Hildebrand resignation, not the front-running wife. Hilly has been up against it ever since the word got out in public that the Greeks were 'liars' about their precious debt/GDP ratio.

Right this second the euro/franc is 'last peg to nowhere'. Swiss don't like capital controls but they don't really have much choice but to implement them. If they defend they have stagflation, if they don't the Swiss taxpayers by way of the central bank take a crushing hit. Swiss has no choice but bury the peg, institute capital controls and lick their wounds. To do otherwise is for the wounds to be fatal.

As Dubya so famously said under similar circumstances, "This sucker's goin' down ..."


Urban Redneck's picture

It's a chicken-and-egg conundrum wrapped in an SS Titanic metaphor.

The Swiss Alps are a huge iceberg, one of many that that the Eurotanic has struck.  As long the ship and icebeg stay perfectly still, the iceberg prevents water from flooding into the Hungary, Austria, and Italy compartments.  If the two separate then the ECB has to go to hyper-pumping to prevent those flooding compartments from bringing down ship and the EU itself. 

Until the inevitable happens, the SNB is sitting on 33,000 and growing dollars/euros or whatever worthless fiat for every man, woman, and child in the country.  When the peg breaks, the value of that "investment" in postponing the inevitable increases in cross currency terms.  To execute the decoupling maneuver without sinking the domestic economy will require all the attention and skill of the SNB and a fair amount of luck.  The huge reserves and access to their own printing presses do give them some options-

Hildebrand's self-induced problems became a distraction, when the SNB can't afford them.  

slewie the pi-rat's picture

banksters don't like the spotlight

but maHildie sure got a ton of great publicity for her art galleries

hildie was at the helm, here, for the most spectacular play in the recent, perhaps total, history of swiss bankstering

in the context of US pressures to get previously-secret account information, after the hydraulic clam opener had been applied to the accounts, and simonB was live-reporting the bigMac index @ 18+ (!), along w/ ginormous funding transfers between "US" and "EU" banks andPM take-downs,  jelly-minded fringe bloggers continued to ask the hard questions, most especially:  wtf?

after months of global seminars on this topic, scholars are claiming Unitary Causation for everything

evolution?  you might well ask...

no!  a global glut of debt!

a total tsunami of IOUs which appear to have been written and funded so a certain group of people and their friends could act like they own the joint, at least for a time...

hildie was one of the all-time all-stars in this "capitalism" whereby all future streams of productive enterprise are "captured" by these debt-wielding JuneTaylorDancers resulting in the post-modern economic ennui of "why the hell should i go to work at this point?"

assuming hildie was gripped by this existential angst over the week-end, we can only hope that he arranged a huge loan to ma before he answered the call

zoggl's picture


Artificial suppression of the value of the CHF by the SNB avoids the necessary adjustments on the high prices in Switzerland. 


847328_3527's picture

Swiss Money Supply? Anyone have an idea how much it's expanded since this began?

The Alarmist's picture

Gee, I guess the next move would be to appoint a sucessor, one who has, at least, a wife or lover who can keep her (or his) mouth shut.