UBS Group AG plans to expand a policy of charging rich clients for holding excess cash in their accounts as negative interest rates in Europe are poised to stay.
The bank, which has made wealth management its central focus, plans to charge its Swiss clients an annual fee of 0.6% on deposits of more than 500,000 euros ($560,000). The fee previously kicked in at 1 million euros.
Like Swiss rival Credit Suisse Group AG, UBS is caught between the prospect of losing money to hold client deposits and imposing fees that could prompt customers to take their business elsewhere. Amid an extended period of ultra-low and negative interest rates, the lenders have to pay central banks to park excess cash in Swiss francs or euros.
UBS’s decision comes after Credit Suisse said it will impose a fee of 0.4% on customers with euro accounts of more than 1 million euros from September. UBS has already said it will introduce negative rates for clients holding large Swiss franc balances, while Credit Suisse said it’s also considering the step.
Clients of UBS can mitigate the 0.6% charge by moving cash into "fiduciary call deposits" outside of Switzerland -- financial instruments that can be called within two working days, the bank said. Those deposits are subject to a 0.375% annual fee. The best scenario for the bank is when clients move their cash into equities or bonds.
Rate Pain
Lenders have long complained about the effect of the low rates, and UBS Chief Executive Officer Sergio Ermotti warned last month that fresh easing could stoke asset bubbles. Credit Suisse CEO Tidjane Thiam called the situation a “challenge” in a Bloomberg TV interview last month and said the bank will announce some measures in August to change pricing and protect income from lending.
Surging trade tensions between the U.S. and China and the increased prospects of a hard Brexit mean the Federal Reserve may cut its benchmark interest rate three times this year, according to a revised outlook from economists at Goldman Sachs Group Inc.
UBS’s charge is 20 basis points more than the European Central Bank deposit rate of 0.4%. While many banks already pass on negative interest rates to institutional clients with balances in the hundreds of millions, they had generally refrained from doing the same with wealthy clients, fearing that they would lose their business.
Julius Baer Group Ltd. said last month that some customers withdrew money because of a wider application of negative interest rates to large cash holdings, mainly Swiss francs and euros.