Swiss bank to charge clients to hold cash
One of Switzerland’s oldest private banks is to charge clients negative interest rates on cash balances over SFr100,000, in the latest sign of the widening fallout of the Swiss National Bank’s struggle to cope with the strength of the franc.
Last week, the SNB stunned markets around the world by abandoning the cap it imposed three years ago to stop the franc appreciating beyond SFr1.20 per euro.
At the same time, to try and make the franc — which functions as a haven currency — less attractive, the central bank said it would push Swiss interest rates further into negative territory, cutting its deposit rate from -0.25 per cent to -0.75 per cent.
In response to the SNB’s move, Lombard Odier, a Genevois private bank that traces its roots back to 1796, now plans to charge its clients a fee of 0.75 per cent on Swiss franc accounts with cash balances of more than SFr100,000. The measure will come into effect on Thursday.
The bank said the fee would apply only to cash deposits, and not to cash held in “discretionary portfolios with conservative, balanced or growth profiles” — referring to a type of investment portfolios in which clients leave it up to the bank to decide how to invest their money.
The SNB’s decision to push interest rates below zero has left Swiss private banks in a difficult position as many of them choose to run small loan books and shy away from investing deposits in risky assets.
As a result of this conservative stance, they are more exposed to the central bank’s measures than other banks which use their deposits more actively to generate revenues.
Lombard Odier said it would recommend that its clients cut the cash holdings in their accounts to “a level that meets their individual needs and to assess alternative investments for the excess cash”.
The bank will provide help for clients looking for alternative ways to invest their cash but those who choose not to will have to pay the fee, it said.
“The resulting negative rate will represent the cost of ensuring maximum liquidity and security at a time of heightened market volatility,” the bank said.
“Many clients will prefer to pay the negative rate with the confidence that their assets are safely held with the SNB in Swiss francs rather than take counterparty or foreign exchange risk elsewhere in the market.”