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December 11, 2012 10:35 am
UBS has become the second Swiss banking giant to announce it will be imposing negative interest rates on banking clients, as it battles with haven flows into the Swiss franc from overseas institutions.
The bank told clients it would apply a fee on shorter-term holdings on a case-by-case basis, following a similar move by Credit Suisse the previous week.
In a statement sent out via Swift, the payments company, UBS said that, “due to the continued prevailing market situation affecting the Swiss franc”, it would “start applying a charge for credit balances maintained by financial institutions in their Swiss franc cash clearing accounts” from December 21.
“We encourage our customers to keep their Swiss franc balances as low as possible, considering their usual cash clearing needs with us,” the bank said.
Switzerland has been fighting inflows into the country in the past year as investors have opted to hold Swiss francs as a haven amid the eurozone crisis. The Swiss National Bank has intervened in the foreign currency markets this year by buying euros to keep the franc weak and prevent the euro moving below the level of SFr1.20 against the franc that it has vowed to defend to help the country’s struggling exporters.
Credit Suisse told clients last week that it also intended to impose charges on a case-by-case basis on bank customers with cash clearing accounts, which are intended for short-term deposits. Both UBS and Credit Suisse have said they have no plans to impose the charges on longer-term deposits or private or institutional holdings.
The Swiss franc fell against the euro and the dollar on the news, as investors speculated that the moves by both Swiss banks could herald a similar move by the Swiss National Bank when it meets on Thursday. Currency analysts said the SNB could signal to the markets that it was considering negative interest rates. The SNB declined to comment.
The euro climbed 0.4 per cent to SFr1.2126 to trade close to a three-month high against the franc hit last week after Credit Suisse announced its plans to charge clients.
UBS is believed to have taken the action out of frustration that other banks were using cash clearing accounts like deposit accounts, holding money for longer amounts of time because of the perceived safety of the Swiss franc, according to one bank insider. The clearing accounts are supposed to be only used to store upcoming currency transactions on a very short-term basis.
“People were lumping cash into cash clearing accounts and pretending they had a currency transaction coming up,” said the banker. “It got to the stage where people weren’t even pretending.”
Money held in cash clearing accounts is seen as a headache for UBS and Credit Suisse in the current environment. Such inflows represent a liability and require extra capital to be set aside at a time when banks are trying to increase their capital ratios to comply with new regulations. It is also less easy for the banks to make money from the inflows by lending them out at a time when interest rates are so low.
The move by UBS is an extension of an existing policy announced in August 2011 that only applied a charge to larger cash clearing accounts. The new policy makes cash clearing accounts of any size liable to a charge.
The case-by-case charges could hit smaller to medium-sized banks harder, with insiders suggesting that better clients, such as large multinationals that do a lot of business with UBS, could get better terms from the bank.
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