Swiss Banks: Cash – What Else?

Wealth managers are quietly widening charges on big cash deposits. The move flags their view that monetary policy will loosen even further – and also their inability to get clients back into markets.

UBS moved first: the Swiss wealth giant said it would lower the level at which it begins charging clients for holding cash to 500,000 euros ($560,000), from 1 million euros previously. Credit Suisse, which hadn’t charged thus far, said it would start charging 40 basis points on clients’ cash above 1 million euros.

The big Swiss banks aren’t alone: everyone from noble Pictet (begins charging at 1 million Swiss francs cash) to Julius Baer (levies charges somewhat arbitrarily on francs, euros, Danish krone, and Swedish krona) to retail lender Postfinance (from 500,000 francs) charge for cash.

Another Cut in the Pipeline?

The move is a bid to offset charges that Switzerland’s central bank is levying – and the more aggressive charging is a sign that Swiss banks generally expect another rate cut from the Swiss National Bank, or SNB.

According to experts, the SNB’s weaponry to combat flight into the Swiss franc is wearing thin. After a cut in the U.S. last month, economists believe the European Central Bank will push its deposit rate further into negative territory next month.

This leaves the SNB out in the cold: Switzerland can’t afford a huge differential to the ECB. The surcharge also works to dissuade investors from fleeing into francs – which leads to strengthening that is undesirable in Switzerland.

Angry Clients

The SNB’s other method of monetary policy – buying up euros and dollars to weaken the franc – clearly isn’t working very well. The Swiss franc soared as investors fled a recent drop in U.S. stocks.

Several economists believe the SNB will opt for the blunter instrument when it meets in September: pushing its benchmark rate to -1 percent, from -0.75 percent current.

This represents bad news for banks: the lower the SNB goes, the more banks have to pony up for holding cash deposits with the central bank (the industry has paid 6.3 billion francs, or $6.5 billion, all told since 2015 according to a recent study). Banks tend to roll at least some of these charges over onto large cash-holders – at the risk of angering those clients.