Negative rates a hurdle for banks: UBS chair

Negative interest rates represent a major challenge for Swiss banks, particularly in trying to defend their profit margins, UBS chairman Axel Weber says.

Negative rates a hurdle for banks: UBS chair
Axel Weber: concerned by negative interest rates. Photo: AFP

Weber told a debate in Bern on Monday that the introduction of negative interest rates in Switzerland in January was forcing changes to the way banks handle wealth management, notably their longer-term investments.
Negative rates are “a challenge for banks' margins” in particular, he told the event organized by the Swiss Bankers' Association.
In January, Switzerland's central bank introduced an interest rate of -0.75 percent on assets held by financial institutions including banks, securities dealers and insurance companies.
The Swiss National Bank (SNB) had announced the drop in December — the first move of its kind in Switzerland in decades — to stop the franc getting any stronger, after the Russian ruble crisis sent investors scurrying to the safe haven currency.
The rate announced in December was -0.25 percent, but the SNB decided to push it even lower on January 15th in a bid to deter investors from taking refuge in the franc and pushing its value sky-high, making imports cheaper but damaging the vital export and tourism industries.
“January 15th had a very strong impact in Switzerland,” Christian Hinze, director of Swiss operations for US asset management giant BlackRock, told Monday's debate.
Some institutional investors have been left with cash to invest as opportunities for investing those funds have been diminishing, he added.
Investors have been turning “more towards alternative investments”, including ones involving higher risks, but also more passive investments such as in financial indexes, Hinze said.
Negative interest rates are another headache for Swiss banks, who are already under pressure to increase transparency in the wake of episodes such as the “Swissleaks” scandal, which saw HSBC pay 40 million Swiss francs ($43 million, 38 million euros) in compensation last week to end a probe into claims its Swiss private banking arm helped clients evade millions of dollars in taxes.
The number of banks in Switzerland has decreased in recent years due to pressure on margins.
Mark Branson, director of Swiss financial authority Finma, told the forum that competition was fiercer than in the past and that banks' margins would probably not return to pre-crisis peaks.
But he stressed that some 300 banks remained active in the Switzerland, even though some foreign banks had chosen to withdraw.
“Fewer banks doesn't necessarily mean that the financial sector will lose ground,” he said.
Despite the concerns raised by Weber, UBS, the country's biggest bank, announced an 88 percent surge in first quarter profits last month despite the strong franc, outstripping analysts' forecasts.

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Swiss fashion chain to pay HQ staff in euros

Telly Weijl, a Swiss fashion chain based in Basel, has decided to starting paying staff at its headquarters in euros instead of Swiss francs, according to media reports on Wednesday.

Swiss fashion chain to pay HQ staff in euros
Photo: The Local

The company’s CEO Beat Grüring told newspapers of the AZ media group that 85 percent of the chain’s revenues are earned in the eurozone.

Continuing to pay wages at the company’s head office in francs would represent a currency risk, Grüring is quoted as saying.

Telly Weijl, with more than 780 stores in 37 countries, had considered moving its headquarters to Lörrach, Germany, where it already has a logistics centre that handles 60 percent of its goods, he said.

But most head office employees were opposed to the move, Grüring said.

While some supported the relocation “we realized that most did not want to work in Germany”.

The company was concerned about losing workers, some of whom have already quit because of fears of a move to the German city.

All employees assigned to the Basel office will be paid in euros, while existing employees there can decided whether they want to be paid in euros or Swiss francs, the SDA news agency said.

The headquarters employs 200 people.

Staff at Telly Weijl’s Swiss stores will continue to be paid in Swiss francs.

The privately owned company, which markets clothes to teens and young women, employs around 3,400 people globally with annual sales of more than €500 million.

Companies in Switzerland are struggling to deal with the franc, which the Swiss National Bank has repeatedly said is significantly over-valued against the euro.

On Wednesday,  the euro was trading at around 1.08 francs after dipping as low as 1.0774 francs on Tuesday.