UBS offers negative rate holiday to some clients after outflows

[ZURICH] UBS Group is offering some of its wealthiest clients in Switzerland a temporary break from negative interest rates in a bid to attract assets as the coronavirus crisis wreaks havoc on markets.

The world's largest wealth manager is offering a payment holiday of several months to clients that plan to eventually invest some of their cash holdings, according to people familiar with the matter who asked for anonymity to discuss internal information.

A spokesman for UBS declined to comment.

UBS last year led the way in passing on negative rates to rich clients, but the policy has led to outflows - US$16 billion were pulled in the first quarter to avoid charges - and is making it harder to attract new money in the current crisis. While investors typically prefer the stability of the Swiss franc in times of turmoil, many are holding more cash and don't want to be forced to make investment decisions as long as the volatility persists.

In addition, the pandemic is reshaping how banks look at deposits, given the surge in demand for credit from companies hit by widescale lockdowns to combat the virus. Credit Suisse Group turned to its own ultra-high-net-worth clients to bolster its ability to lend as markets sank in March and companies started drawing down credit lines to weather the coronavirus pandemic, Bloomberg has reported.

UBS is discussing the payment holiday on a case-by-case basis, the people said, and the bank plans to recoup lost interest by boosting lending. Swiss lenders have gotten some relief from negative interest rates recently when the country's central bank increased the amount they can deposit there without being charged.

Despite outflows from clients seeking to avoid negative interest rates in Europe, UBS still posted a net US$12 billion of inflows across its global wealth management unit in the first quarter.

SPREADING THE PAIN

While UBS is offering some flexibility to its richest clients in Switzerland, it has continued a push to pass on the cost of negative rates to a broader client base. Last month it started charging clients in Germany for deposits of as little as 500,000 euros (S$765,719). The threshold was previously at 1 million euros.

Credit Suisse is also considering sharing that burden with a broader group of clients over the course of this year, according one person familiar with the matter. It currently charges negative interest rates on deposits above 2 million francs (S$2.9 million) and 1 million euros. A spokesperson for the bank said there are no changes at this point but Credit Suisse was closely monitoring market developments.

BLOOMBERG