ZURICH--The market value of Switzerland's biggest banks crumbled
Thursday in the wake of the central bank's decision to scrap its
currency cap and potentially raise fees charged on the big lenders'
deposits.
The Swiss National Bank's move suddenly exposed the country's
big banks to potentially significant declines in the value of the
euro and U.S. dollar relative to the Swiss franc. As of midday, the
euro had fallen to about 1.03 francs from 1.20. The central bank
had pledged for years to maintain the cap of 1.20 to the euro to
facilitate Switzerland's export-driven economy.
In addition, the central bank's corresponding decision Thursday
to further lower an already negative rate on certain deposits,
effectively raising the rate charged to the banks' deposits to
0.75% from 0.25%, could raise the cost for the big banks to park
money at the SNB.
The hundreds of smaller, private banks that dot the
country--which are already under duress--may now further suffer
alongside their bigger peers given the increasing costs, coupled
with a potential decline in dollar- or euro-denominated income and
possibly severe swings in the value of the portfolios they maintain
for wealthy clients.
"It's bad for the whole banking sector," said Andreas Ruhlmann,
an analyst at IG Bank.
Shares of Zurich-based UBS AG, the country's biggest bank, had
fallen nearly 14% by midday. Crosstown rival Credit Suisse Group
AG's shares were down 13%.
A spokesman for Credit Suisse declined to comment. A UBS
spokesman said he was unable to comment immediately.
In December, when the Swiss National Bank moved to implement a
negative interest rate on deposits, neither Credit Suisse nor UBS
said it would have an immediate financial impact. Both big banks
are required to hold a certain amount of funds at the central bank,
and the negative rate announced last month didn't apply unless the
banks' deposits exceeded 20 times that minimum amount.
On Thursday, the central bank didn't specify a threshold above
which the new negative rate would be charged on deposits.
A spokesman for Julius Baer Group AG, a large Zurich-based
private bank, declined to comment. Shares of Julius Baer were down
more than 18%.
Switzerland's private banks have been roiled in recent years by
increasing legal pressure from foreign authorities seeking to track
down undeclared funds hidden in Swiss accounts. That pressure has
raised compliance costs for banks, pushing many to seek buyers or
offload some of their operations.
A recent study conducted by consulting firm EY found that 81% of
Swiss banks expect the sector to consolidate in the coming
year.
Write to John Letzing at john.letzing@wsj.com
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