www.zerohedge.com
For years, European banks were leery of passing on the ECB's negative
-0.40% deposit rate to their clients for fears of deposit flight and
other unintended consequences, in the process being forced to "eat" the
difference and impacting their interest income.
However, after five years of NIRP, and with the ECB set to unleash
even more negative rates in the immediate future, one bank has finally
taken a stand: according to the FT, UBS plans to charge a negative
interest rate on wealthy clients, those who deposit more than CHF 2
million with the largest Swiss bank.
While several, mostly smaller, banks in Switzerland and the eurozone
already pass on the cost of negative official rates to corporate
depositors, most large players have refrained from doing so with
individual clients. But with the ECB expected to adopt a “lower for
longer” stance as soon as the next central bank meeting, starting in
November, UBS Switzerland will charge -0.75% a year on individual cash
balances above 2 million Swiss francs, the same rate as the SNB's rate.
The move, as the FT notes, "underscores how banks in Europe and the
US are scrambling to prepare for a protracted spell of lower rates that
threatens their profitability, having previously wagered that central
bankers would tighten monetary policy."
Last month the Swiss National Bank said it would hold the negative
rate it charges on commercial banks’ deposits at -0.75%, while the ECB
deposit rate is -0.4%, but is widely expected to drop by another
10-20bps, which in turn will prompt even more negative rates in
Switzerland. In a note to clients last month, UBS forecast that the SNB
would lower its rate on deposits to -1% in September, approaching
dangerously close to the infamous "reversal rate", below which accomodative monetary policy reverse and once again becomes contractionary for lending, i.e., the true lower bound of NIRP.
"A year ago everyone thought interest rates would go up. Now it doesn’t look like that," said one senior wealth manager at UBS quoted by the FT.
To preempt the inevitable howls of rage from wealthy clients who will
soon see their total savings shrink by 1% (or more) every year just to
hold their money in the bank, UBS relationship managers have started
discussing the forthcoming charges with some wealthy clients and are
preparing to issue a letter outlining the changes. Some of the bank’s
smaller rivals, such as Julius Baer and Pictet, already charge some
clients with large cash deposits.
“We assume that this period of low interest rates will last even
longer and that banks will continue to have to pay negative interest
rates on customer deposits at central banks,” UBS said.
“Following similar moves by a number of other banks here in Switzerland,
we confirm that we’ve decided to adjust cash deposit fees for Swiss
francs held in Switzerland.”
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