The largest Swiss bank has extended its fees on large accounts to deal with the pain of negative official interest rates.

The pain caused to Switzerland-based banks from negative official rates, in place for more than four years, has come under the spotlight again with the country’s biggest lender extending fees.

UBS said conditions in money and capital markets remained “very challenging”. The Zurich-based firm said that following “similar moves by a number of other banks here in Switzerland”, it is adjusting cash deposit fees for Swiss Francs held in Switzerland.

A spokesperson for UBS stressed that the changes only apply to the Swiss banking business.

From 1 November, private individuals holding large cash balances of SFr2.0 million with UBS Switzerland will be charged a deposit fee of 75 basis points, or 0.75 per cent. (The Swiss National Bank sets interest rates at a negative 0.75 per cent.) For clients holding large euro cash balances with UBS Switzerland AG, the threshold will be cut to €500,000 as of November, from €1 million, which it said is “in line with competitors”. Holdings above the threshold will be charged a deposit fee of 0.60 per cent per annum.

“Interest rates are lower than expected, remaining in negative territory. 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.

Other banks
Julius Baer told this publication that negative interest rates for clients are “introduced on a case-by-case basis for certain currencies” (Swiss franc, euro, Danish Krone and Swedish krona). Clients with large cash holdings are affected. Credit Suisse said that it will introduce a -0.4 per cent rate for the first time on 1 September for its clients with balance of €1.0 million; it has not previously had a negative rate for private clients with euro accounts. 

“Our relationship managers are in regular contact with clients holding large cash positions, in order to discuss suitable investment proposals as alternatives. The bank will continue to monitor developments,” a spokesperson at Julius Baer said. 

The reason why
The Swiss National Bank, which put official rates into official negative territory in early 2015, has defended the policy as a way to weaken the Swiss franc, which has been boosted by its status as a safe-haven currency. In 2014, the SNB stunned markets by abandoning its Swiss franc cap against the euro of 1.2, a move that is said to have wiped out several hedge funds. One consequence of the change is that UBS, which earns the majority of its revenues outside the Alpine state, now reports its figures in dollars, rather than the Swiss franc. (So far, other major Swiss banks still report in the local currency.)

Another result of negative official rates (a policy also in places such as Denmark and Japan) has been to encourage some merger and acquisition activity in Switzerland, compressing the number of banks. According to the Swiss Bankers Association, there are 253 banks in the country, down from more than 300 a decade ago.

EY, aka Ernst & Young, has studied the pressures caused by the Swiss central bank’s policy. (See here.)