UBS AG (UBSN), Switzerland’s biggest bank, said it will start charging financial institutional clients for cash balances held in Swiss francs, adding to measures imposed last year to control inflows into clearing accounts.
The charge, which will be communicated individually to clients within days, will be levied from Dec. 21, the Zurich- based lender said in a notice to bank clients via the Swift system yesterday and made available by UBS. The company cited “continued prevailing market situation affecting the Swiss franc” for the move. The franc weakened against the euro.
UBS has been levying a “temporary excess balance fee” since August 2011 in cash clearing accounts where net inflows were above a certain undisclosed threshold. Credit Suisse Group AG, the second-biggest Swiss bank, said last week it would start imposing negative rates on cash clearing accounts in francs and other currencies above a certain threshold as of yesterday.
UBS and Credit Suisse are cutting risk-taking and reducing their balance sheets to meet stricter capital requirements from regulators. The franc deposits held for other banks use up capital and introducing negative rates allows a lender “to make money,” Geoffrey Kendrick, head of European currency strategy at Nomura International Plc in London, said in a note last week.
The franc declined against the euro after the notice from UBS, weakening to as low as 1.21265 per euro. Switzerland’s central bank imposed a cap of 1.20 francs per euro in September 2011 to protect the economy after investors seeking a haven from Europe’s debt crisis pushed the exchange rate toward parity.
“We encourage our customers to keep their Swiss franc balances as low as possible,” UBS said in its notice.
The Swiss National Bank declined to comment.
The franc depreciated to the weakest level in almost three months against the euro last week as Credit Suisse was said to set a negative rate of as much as minus 1 percent on balances held in the Swiss currency. Depositors have turned to Switzerland and Denmark as they hunt for currencies with less risk than the euro, the fate of which depends in part on whether nations such as Greece can pay their debts.
State Street Corp. and Bank of New York Mellon Corp., two of the world’s biggest custody banks, have already disclosed plans to offer negative interest rates on francs and Danish kroner. Royal Bank of Canada is also imposing negative rates on some customers for those currencies.
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