By Juliet Chung And Vipal Monga
Several global banks have begun charging large customers to
deposit their money in euros, a rare move that could have costly
implications for investors and companies that do business on the
Continent.
The actions are driven by policies from the European Central
Bank, which in June became the largest central bank to impose a
negative interest rate on deposits--meaning banks are paying to
park their money with the ECB. The effort is designed to encourage
banks to instead use that money to lend. When the ECB dropped those
rates further in September, some banks started pushing those
costs--or costs related to the rate cuts--onto customers.
Now, instead of paying customers interest on their euro
accounts, as they have done traditionally, some banks have started
charging them. Bank of New York Mellon Corp. recently started
charging 0.2% on euro deposits, the bank said Friday, and Goldman
Sachs Group Inc. and J.P. Morgan Chase & Co. have also started
charging clients, according to people familiar with the matter.
Meanwhile, Credit Suisse Group AG has told customers it will
pass along negative interest rates on all currencies in which they
apply, people familiar with the matter said, and has started
charging on euro deposits.
Many bankers and their clients say the shift is the most
sweeping of its kind they can recall. The clients most immediately
affected are investment firms, such as hedge funds and mutual-fund
companies. Multinational corporations with sizable operations in
Europe also could face additional costs, according to bankers who
work with them.
Negative rates reflect in part the paralysis that threatens to
plague Europe's economy. Households and businesses are so reluctant
to spend or invest that banks are charging some customers merely to
hold their cash. The recent moves appear to reflect a view from the
banks that the negative rates are likely to persist for some time.
They also could push customers with large deposits to put that
money into other vehicles that are more risky.
The fees also underscore challenges institutional depositors
such as hedge funds, mutual funds and corporations may face in
finding a haven for their deposits. Banks have traditionally
competed for institutional investors' deposits. But new banking
rules force them to set aside more capital against that cash, which
earns little return these days, making such deposits
unattractive.
HSBC Holdings PLC will soon start charging customers with more
than roughly EUR10 million ($13 million) in deposits, according to
a person familiar with the matter. The move is intended to
discourage a flood of deposits from institutional investors fleeing
competitors that already have started levying charges on euro
deposits, the person said. An HSBC spokesman said Friday the bank
was "monitoring the situation" regarding negative interest
rates.
Several bankers said the changing regulatory landscape has made
it harder to eat the cost, as they might have in the past. In 2011,
BNY Mellon disclosed a move to charge some of its U.S. depositors
for holding their cash, after investors poured money into the bank
to escape gyrations in the market. The bank later aborted the
plan.
A BNY Mellon spokesman said the 2011 situation "resolved itself"
as deposit levels shrank. "The current euro situation is much more
enduring and is likely to be the norm for some time," he said.
The latest move by the banks is notable because so many of them
are taking the step, giving customers fewer options for moving
their money. Several people familiar with the matter said the fees
could vary depending on the client and the bank.
"As we go through this period of low interest rates in the
eurozone, our expectation is this is going to linger for a long
time," said Peter Yi, head of short-duration fixed income at
Chicago-based trust bank Northern Trust Corp. "This isn't something
that's going to go away in the next year."
Mutual-fund firm Vanguard Group confirmed it is being charged
for its euro balances. "That is being passed on," said Vanguard
spokesman David Hoffman. "It's very recent."
He declined to say which banks are instituting the charge or
detail the firm's euro cash exposure, but he said it was "very
small."
The new charges are setting off a search by some clients to try
to avoid or minimize fees. Investors and bankers say some clients
are looking for banks that haven't yet started charging for euro
deposits. Others are moving their balances into cash-like
instruments such as money-market funds or repurchase agreements,
also known as repos, which are short-term loans backed by
collateral.
The BNY Mellon spokesman said the bank was working with clients
who were looking for alternatives to cash deposits to find
investment opportunities.
In an interview Friday, BNY Mellon Chief Financial Officer Todd
Gibbons said the firm expects the fees to be imposed across the
industry. He said 15% of BNY Mellon's deposits are euro-dominated
and that he expects most of the affected clients to be "savers on
the institutional side," including financial-services firms,
corporations and pension funds.
The charges highlight the divergent paths central banks in the
U.S. and Europe are taking. Although the Federal Reserve has kept
interest rates low for years, it continues to pay banks on excess
deposits and has signaled it hopes to raise rates relatively
soon.
Relationships between banks' prime-brokerage businesses, which
execute and finance trades, and their clients are already feeling
strains. Some banks have started squeezing clients such as hedge
funds by increasing the cost of financing and, in some cases,
dropping clients that don't bring banks enough profit.
Not all big banks are following suit. Deutsche Bank AG had not
started levying charges on euro deposits as of Friday, according to
people familiar with the matter.
State Street Corp. said in a statement Friday it hadn't started
charging on euro deposits but that it had told clients it might do
so in the future. "Continued persistence or deterioration of the
current rate environment may require that we take action consistent
with prudent financial management," the statement said.
Anthony Carfang at Treasury Strategies, a Chicago-based
consulting firm, said the prominence of the negative rates made
such charges more palatable than they may have been in the past.
"This looks like a pass-through," he said. "That makes it a lot
more acceptable in the customer's mind."
Jon Hilsenrath, Max Colchester and
Daniel Huang
contributed to this article.
Write to Juliet Chung at juliet.chung@wsj.com and Vipal Monga at
vipal.monga@wsj.com