UBS has a counter-intuitive approach to customer loyalty programmes. It is charging negative interest rates simply for stashing people’s cash. The Swiss bank is lowering the threshold for this unappealing offer to SFr250,000 ($281,000). But if customers take up enough of its bank’s financial products, they do not have to pay after all.
The big wealth manager explained its anti-sales drive in a staff memo on Tuesday. It was an insight into the pain that negative rates cause banks.
Negative rates from the Swiss National Bank are not intended to encourage banks to lend as those of the European Central Bank are. They certainly will not help the profits of Swiss banks. Typically, income is squeezed as loan pricing falls, particularly if funding rates stay the same.
Weakening the Swiss franc, which has a haven status globally, is the aim. Manufacturing makes up almost a fifth of the economy, double that of finance. A high Swissie hurts Alpine metal bashers.
The currency’s lustre has created a liquidity trap. Even PostFinance, the post office bank, is charging depositors with more than SFr100,000 in their accounts. Insurance companies, which seem to have nowhere to put their domestic funds, have started offering residential mortgages.
Banks employ a lot of Swiss people. UBS is the country’s third-largest private sector employer, for example. But financial services groups are politically unpopular. The rate policies of the SNB are consistent with that, inflicting pain on big finance with the aim of helping engineers and the supply chain of small businesses
Including estimates for last year, UBS’s net interest income in its two biggest divisions — wealth management and personal/corporate — will have moved sideways since 2016, according to Visible Alpha data. Overall, net interest income has made up 15-20 per cent of UBS group revenues in recent years.
UBS’s wealth management arm has some $2.7tn of invested assets. Losing a few lower-margin clients will not hurt it much. The broader squeeze on profitability from low rates is a much bigger problem for Swiss banks.
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