Bank of New York Mellon Corp., with $27.1 trillion of assets under custody and administration, said it’s helping clients pull cash from Denmark and Switzerland as the central banks take measures to stem appreciating currencies.
“We’ve been working with our clients on how to sweep their money out of Denmark so they don’t get subjected to a charging environment,” Chief Executive Officer Gerald Hassell said in an interview in Doha, Qatar. In Switzerland “we’ve been able to work with our clients to not have cash trapped there.”
Denmark’s Nationalbanken cut its deposit rate to minus 0.2 percent in July, stepping up a battle to prevent the krone from strengthening beyond its currency band as the nation’s haven status attracts investors and effectively charging depositors to take their money. Swiss National Bank Vice President Jean-Pierre Danthine said in June that installing similar fees “is a measure we could consider if circumstances warrant it.”
Denmark has an accord with the European Central Bank to let the krone swing no more than 2.25 percent from a rate of 7.46038, though it maintains a tighter band in practice. The Copenhagen-based central bank only adjusts rates to defend the krone’s peg to the euro. The SNB imposed a franc ceiling of 1.20 versus the euro a year ago, a measure last used in the 1970s, as the currency rose as much as 37 percent in the prior 12 months.
“We’re very actively working with our clients to help them position their cash to avoid that issue” of charges on deposits, Hassell said, during a client trip in the Middle East, where the bank has some of its largest customers.
BNY Mellon, the world’s largest custody bank, also had $1.3 trillion of assets under management at the end of June.
The bank on July 18 reported a 37 percent decline in second-quarter profit as low interest rates and declining stock markets cut into revenue and BNY Mellon settled a lawsuit. The net interest margin, the difference between what a bank pays on deposits and receives on loans and investments, was 1.25 percent in the quarter, an all-time low, Chief Financial Officer Todd Gibbons said in a telephone interview at the time.
“Low interest rates for everyone are a challenge,” Hassell said. “If rates were even 50, 100 basis points higher than what they are today we would earn several hundred million dollars per year.”
BNY Mellon, along with other managers, closed its European money fund to new investments because “we can’t find new investments that earn any yield,” said Hassell. “At the moment its naturally redeeming itself as time goes on.”
More than half of Europe’s money market funds by assets have closed because securities they invest in pay negative returns after the ECB cut interest rates, Standard & Poor’s said in July. Funds with assets totaling 79 billion euros ($97 billion) have closed, out of a pool of 133 billion euros rated by the New York-based firm, S&P said in a report.
The U.S. Federal Reserve, which yesterday announced its third round of large-scale asset purchases since 2008, also extended the prospect of near-zero interest rates until mid-2015 and said policy will stay accommodative “for a considerable time” even after the economy strengthens.
BNY Mellon is cutting about $750 million of costs over a three-year period and working on new initiatives to mitigate the impact of lower interest rates. These include its so-called global collateral service, which is intended to help institutions find collateral that can be posted for trades.
“We can’t wait for interest rates to rise to get the returns our shareholders are looking for,” Hassell said. “We have to control what we can control as much as possible.”