December 11, 2012 / 2:13 PM / 5 years ago

UBS to charge banks for Swiss franc deposits

ZURICH (Reuters) - UBS UBSN.VX will charge other banks for holding Swiss franc deposits from next Friday, the second major Swiss bank seeking to deter rivals from hoarding the safe-haven currency.

UBS said it would levy an as-yet undisclosed penalty on such deposits, an announcement that came after Credit Suisse CSGN.VX said last week it is preparing to levy credit charges on bank clients’ franc accounts.

The banks’ moves are aimed solely at protecting profit margins in the face of rock-bottom interest rates, but their actions are inadvertently doing a favour to the country’s central bank by helping to weaken its strong currency.

The Swiss National Bank (SNB) declined to comment on Tuesday’s announcement which UBS first flagged in August 2011, saying then it could penalise third-party bank clients for holding francs.

Ultra-low Swiss interest rates mean it is difficult for custody banks, which hold franc deposits for asset managers and pension funds, to cover the cost of the business.

The move by Credit Suisse helped to push the franc to a 10-week low last week and the UBS action also weighed on the Swissie on Tuesday. The franc was down 0.3 percent at 1.2108 at 1233 GMT. [ID:nL4N09L2OG]

The SNB imposed a cap on the franc at 1.20 per euro in September 2011 to shield the economy after the currency soared by a quarter in just a few months, pushed up by safe-haven flows fleeing the euro zone crisis.

Swiss officials have said they could consider imposing capital controls - such as negative rates on offshore deposits - to deter a new influx of hot money should the euro zone crisis worsen, but most economists see such steps as unlikely.

A Reuters poll of economists last week showed only a small minority expect Switzerland to resort to additional measures to weaken the franc.

The SNB holds its quarterly monetary policy meeting on Thursday and all economists surveyed predict that the SNB will reiterate its commitment to hold down the franc and keep interest rates close to zero.

    Among the minority who do expect more action, a charge on sight deposits - the cash commercial banks hold with the SNB - was considered the most likely, followed by forcing commercial banks to charge offshore clients to hold franc deposits.

    However, the cost of such curbs to the large Swiss banking industry is seen as outweighing their limited chance of success in taming the franc. Switzerland last imposed capital controls in 1972, but they failed, prompting the SNB to eventually cap the franc versus the deutschmark.

    UBS said it would start applying a charge for credit balances maintained by financial institutions in their franc cash clearing accounts, effective from December 21.

    “We encourage our customers to keep their Swiss franc balances as low as possible, considering their usual cash clearing needs with us,” UBS said in a statement to clients seen by Reuters.

    Two months ago, Bank of New York Mellon (BK.N) and State Street (STT.N) also began charging fund management clients for deposits in Danish crowns and Swiss francs.

    Reporting by Katharina Bart and Emma Thomasson; editing by Stephen Nisbet

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