While UBS groans about record-low and negative interest rates, it is quietly benefiting as an intermediary for others. Its mortgage platform for institutional clients is booming.

Mortage lending is unappealing for banks in Switzerland: the central bank has pushed interest rates to -0.75 percent, meaning Swiss banks pay surcharges on franc deposits. UBS is one of several banks which have massively reduced their domestic home equity loan books since 2015.

Instead of earning of low rates, the Swiss bank wants to increasingly win fees, UBS' Swiss boss Axel Lehmann said last fall. He wants to grow twice as fast as the wider economy in this area, he said (story in German).

Complementary Offer

Atrium, an UBS platform which has mediated $1 billion in mortgages since launching two years ago, fits the bill. «Atrium is complementary to traditional mortgage lending, UBS banker and Matteo Bernardoni, who runs it, told finews.com. «We're complementing the traditional interest margin with a fee-based model.»

The volume of mortgages Bernardoni has brokered pales in comparison to the $400 billion size of the home lending market overall. He doesn't care for the comparison: only a fraction of the mortgages placed every year are renewed, mainly at the same bank, Bernardoni argues.

He also notes that Atrium is specialized in brokering mortgages which are more attractive for institutional investors than for UBS. He refers to loans with terms of ten years or more.

Apples to Apples

One of the platform's most persuasive arguments for UBS is that the quality of the mortgages is the same as those the bank itself finances. «Since the products are based on the same credit structure and contract terms, borrowers have the advantage of an easy comparison,» Bernadori said. «There's a difference in price, but not in terms.»

UBS backs Atrium financially, but has only bankrolled a marginal part of its volume to date. The advantage for investors compared to dealing directly with borrowers is that UBS manages the mortgage through its lifespan – and gets paid to do so. Investors benefit from the Swiss retail giant's expertise in home equity lending.

Subjective Trust

«'Credit' derives from the Latin 'credere,' or trust. That's very important in long-term mortgages, because a lot can happen in the interim,» financing expert Bernardoni (pictured below) says. «A lot of lending is objective, but there are also some subjective criteria.»

matteo bernardoni

Atrium is a modest attempt to buck the trend of sinking interest income CEO Sergio Ermotti warned over. The platform clinched 65 percent of inquiries in its first two years; this year, it inked more than 80 percent of them.

The platform is seeing avid interest by investors – such as pension funds and insurers – who are out of options when their traditional investments in bonds don't pay yield. For Swiss banker Bernadori, this presents a dilemma: «I always have to consider both sides. It's challenging to balance supply and demand and ramp up volume. But that also makes it interesting.»