Credit Herald

Jean-Pierre Roth’s successor as Swiss central bank chief will have to restore confidence to a financial system more used to stability than turmoil.

Economists are casting deputy Philipp Hildebrand, 45, as favorite to take over and tackle an economy hurt by the franc’s surge to a record. In addition, UBS AG and Credit Suisse Group AG have damaged their reputation for prudence and policy makers are running out of tools after cutting interest rates close to zero. Roth, 62, said yesterday he’ll retire at the end of 2009.

“The biggest challenge is going to be bringing back stability to the Swiss financial sector,” said Janwillem Acket, chief economist at Julius Baer Holding in Zurich, who favors Hildebrand. “It’s important to have someone with knowledge of the current situation with a good international network.”

Whoever gets the job will inherit an economy likely to spend 2009 in intensive care along with the rest of the world’s advanced nations. The franc’s status as a haven during times of financial stress has prompted Hildebrand to say the bank may have to intervene in push it down from a record and the SNB says Switzerland is facing its worst year since 1982.

The central bank has reduced its main rate to 0.5 percent, the lowest among Europe’s advanced nations, cutting 225 basis points from the benchmark since early October.

All this comes as Swiss banks struggle under the weight of the crisis. UBS, the country’s biggest bank, has been burdened by more than $50 billion in losses and writedowns. Credit Suisse, the country’s second biggest bank, has been hit by more than $15 billion in losses.

Youngest Ever

Hildebrand was the youngest ever Governing Board member when he joined the central bank in 2003. A former swimmer who narrowly missed qualifying for the Olympic Games in 1984, he became the SNB’s vice president two years ago.

Once a bell boy at Davos, the Alpine resort that hosts an annual meeting of central bankers, economists and financiers, Hildebrand studied at the University of Toronto and received his doctorate in International Relations at Oxford.

A veteran of the banking industry, he was chief investment officer at Vontobel Group until 2001, when he became a member of the executive board at Union Bancaire Privee in Geneva.

Hildebrand, who heads the SNB’s financial stability department, has been one of the most vocal advocates for deploying unconventional tools, saying Feb personal loans for bad credit. 5 he won’t hesitate to use such measures “decisively.” In January he said that the SNB is prepared to set a ceiling to the franc’s exchange rate.

Franc Surge

The currency has surged 9.3 percent against the euro in the past six months, complicating the SNB’s ability to revive growth.

“My money would be on Hildebrand,” said Kenneth Broux, an economist at Lloyds Banking Group Plc in London. “He has just been more active on the speaking circle lately and has been more open about what the SNB can do in terms of strategy. He’s been open and transparent.”

Even if Hildebrand is appointed, Roth’s retirement means the SNB will still add a new policy maker to the three-person board. The SNB’s Bank Council recommends the successor and the government makes the final decision. In 2001, Roth was selected by the government against the council’s recommendation of Bruno Gehrig.

Candidates

Other possible candidates include SNB board member Thomas Jordan, the central bank’s chief economist Ulrich Kohli and Ernst Baltensperger, an architect of the central bank’s monetary strategy, economists say.

External candidates may include academics Peter Kugler, Manuel Ammann or Beatrice Weder di Mauro, a Swiss-born member of Germany’s panel of economic advisers.

The successful candidate will also have to help draft and implement new banking rules for the Swiss financial system. A group of advisers headed by former Bank of France Governor Jacques de Larosiere said Feb. 25 the EU needs new agencies and called for the creation of a committee within the European Central Bank.

The new SNB chief “will also have to push for closer cooperation with other central banks on the banking oversight,” said Broux.

Amid all the global challenges, the new SNB head will also have to live up to legacy of the incumbent who joined the central bank in 1979 and has been a member of its three-person Governing Board since 1996.

“It wasn’t only luck that meant Switzerland entered the current economic crisis in the best possible condition,” said Michel Derobert, Secretary General of the Swiss Private Bankers Association in Geneva. Roth “certainly leaves the bank in a better state than he found it.”

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