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Credit Suisse Sets Negative Rates to Discourage Franc Deposits

Date : 12/03/2012 @ 10:00PM
Source : Dow Jones News
Stock : Credit Suisse Grp. (CS)
Quote : 25.8  0.04 (0.16%) @ 8:40PM
Credit Suisse Grp. share price Chart

Credit Suisse Sets Negative Rates to Discourage Franc Deposits

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ZURICH--Credit Suisse Group AG will begin charging other banks interest on Swiss franc deposits next week, becoming the first major Swiss bank to impose negative rates in order to cope with demand for the country's currency.

The Zurich-based bank, Switzerland's second-largest by market value, will set negative interest rates on cash accounts, it said in a statement Monday. The bank didn't indicate what the negative rate might be when the policy goes into effect Dec. 10.

The policy applies only to interbank deposits, not to accounts held by individuals.

"We invite our customers to keep cash balances as low as possible to avoid negative credit charges," Credit Suisse said in the statement sent via the Swift interbank payments system.

Credit Suisse's move comes as banks look for ways to cope with surging demand for the franc, which has soared in value as global investors seek a haven from the ongoing debt crisis in the euro zone. Credit Suisse's move follows a decision by State Street Corp. (STT) in October to levy charges on its Swiss franc and Danish krone deposit accounts.

The Swiss National Bank, the country's central bank, declined to comment on Credit Suisse's decision.

The SNB has struggled to control the value of the franc, cutting interest rates to near zero in August 2011. A month later, the central bank imposed a floor of 1.20 francs per euro to check the appreciation of the franc in attempt to head off a recession and help the country's exporters remain competitive.

Currency traders said Credit Suisse is likely trying to avoid attracting franc funds because it has nowhere to invest the money profitably. In fact, holding francs will likely cost Credit Suisse money because of the costs of administering fresh deposits.

"It can park the money with the SNB," said Alessandro Bee, a currency strategist at Bank Sarasin, "but it gets no interest whatsoever."

The SNB hasn't imposed negative rates on deposits and maintains a target rate of 0.0% on franc deposits. But commercial banks have effectively paid negative rates on franc deposits for months because Swiss inflation ran at an annualized 0.1% in October, eroding the buying power of deposits.

Analysts say the Credit Suisse move is unlikely to choke off demand for the franc, particularly as the end of the year looms. Investors traditionally seek a safe haven like the franc to tide them over the Christmas and New Year holidays.

The euro rose sharply versus the franc earlier, pushing it close to 1.2090, though traders said the euro-zone currency had also benefited from news that Spain has formally asked for European aid to recapitalize its banking sector.

"It's one more thing that's going to make it easier for the SNB to defend the peg," said George Dowd, who heads Newedge USA's foreign-exchange trading desk in Chicago. "It decreases the attractiveness of moving money to Switzerland. You can't be too excited about being long Swiss franc."

Matthew Walter in New York contributed to this article.

Write to Neil MacLucas at Neil.MacLucas@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires




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