UBS Introduces Charges on Euro Accounts Exceeding 1 Million

  • Bank becomes latest to pass on region’s negative rate
  • Wealthy clients, some institutional customers already charged

UBS Group AG is extending charges on cash holdings to more of its customers, becoming the latest bank to pass on the euro region’s negative interest rates.

Starting in May, the world’s largest wealth manager will introduce an annual fee of 0.6 percent on balances exceeding 1 million euros ($1.08 million), the bank told clients in a letter seen by Bloomberg. UBS confirmed the content.

“This charge reflects our costs resulting from the continuing extraordinarily low interest rates in the euro area and increased liquidity regulations,” the bank said in the letter. Clients who don’t agree to the conditions will see their accounts closed.

The European Central Bank is trying to spur lending and investment by making banks pay to park their money at the ECB -- lowering the rate three times since it first dropped below zero in mid-2014. Sweden, Denmark, Switzerland and Japan are also experimenting with negative rates to help their economies, an unorthodox move that has distorted financial markets and is squeezing bank profit margins.

With no end in sight to sub-zero rates, a growing number of banks are charging to hold large amounts of cash at the risk of driving away big clients and depriving themselves of funding. Margins at UBS’s wealth management business have declined for three straight quarters under pressure from forces including negative rates.

“We have been able to pass on some of the regulatory costs or interest rate costs to clients without compromising relationships,” Chief Executive Officer Sergio Ermotti said at a conference in London Wednesday. “That was not an easy process. "

Among other banks transferring the pain to customers, Swiss wealth manager Julius Baer Group Ltd. is selectively charging euro clients, the bank said during its fourth-quarter earnings call. Bank of New York Mellon Corp., which holds money for institutional investors, began charging for euro deposits more than two years ago. Goldman Sachs Group Inc. and Credit Suisse Group AG were also among the first firms to pass on the ECB’s negative interest rates, people said at the time.

UBS and Credit Suisse are already billing some wealthy customers and institutional clients for large cash deposits in Switzerland, where the central bank first imposed negative rates in early 2015 to fend off interest in the franc. The two banks’ combined average of deposits subject to the 0.75 percent charge quadrupled last year from 2015, according to the Swiss National Bank.

Migros Bank AG, a closely held Swiss retail lender, is lowering its tolerance level for cash holdings. Come July, the fee will apply to customers with more than 1 million francs ($1 million) and corporate clients with more than 5 million francs. Migros currently charges for deposits of 10 million francs or higher.

The new UBS fee will be calculated and debited daily and applies to the total combined balance in multiple accounts held by the same customer. It doesn’t apply to euro accounts held in other investment advisory or discretionary mandates.

— With assistance by Zoe Schneeweiss

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE