Friday, April 15, 2016

Negative Rates: How One Swiss Bank Learned to Live in a Subzero World

From the Wall Street Journal, April 14:

When Alternative Bank Schweiz moved to charge depositors, it actually gained account holders
ZURICH—Negative interest rates are rattling banks around the world, but one small Swiss lender has learned to stop worrying and lean in.

Alternative Bank Schweiz AG late last year became Switzerland’s first bank to comprehensively pass along negative rates to all of its customers. Violating an almost religious precept in the financial world, ABS informed its clients that they would have to pay a charge of at least 0.125% to maintain their accounts at the bank starting in 2016.

In January, as the titans of global finance gathered in Davos, ABS Chief Executive Martin Rohner was poring over data in his bank’s Zurich office near a gritty red-light district and sounding cautiously hopeful. In the first two full months after ABS’s October negative-rate announcement, 1,797 clients had left the bank, but 1,830 new accounts had been opened—for a net gain of 33.
“We had an excellent year,” Mr. Rohner said at the time.

Fresher data for January and February, the most recent available, showed that ABS was still net positive on accounts, with its gain expanded to 59.

Pietro Majno, an ABS client, said he never considered leaving after the bank started charging him to hold his money. A professor of surgery at University Hospitals of Geneva, Dr. Majno said he thinks ABS is more transparent and reliable than other banks. “Maximizing profit is not my aim,” he said.
ABS’s decision is providing a real-life data point for a question that has bedeviled economists: what happens when negative rates are passed on broadly to consumers? In theory, they should prompt people to spend their money or hoard it in cash under a mattress, rather than save it at a bank and watch it shrink. But there’s little evidence of how people might in fact react.

At ABS, total account balances fell by 4%, or 54 million Swiss francs ($56.5 million), between last October’s negative-rate announcement and February, as clients shifted money from cash holdings at the bank into investments. However, overall assets under management remained steady, ABS said....MORE